Blackfriar: Yorkshire should ignore the rants from Down Under

For those of you with thick skins, here are some of the headlines:

“British banking arm has been a waste of time and money”– The Sydney Morning Herald.

“Termination time for National Australia Bank’s British blight” – Herald Sun.

“NAB still has a very British problem” - The Australian.

And perhaps the most positive if you don’t mind being described as a “millstone”: “No ‘fire sale’ of UK millstone as NAB profits hit” – The Sydney Morning Herald, which produced two stories on NAB.

As far as hacks down under are concerned NAB’s two UK banks, Yorkshire and Clydesdale, are “a major blight”, “a nightmare”, “a complete waste of space”, “sub-standard”, “too small to matter”, “plain awful” and perhaps the least kind, “an albatross around NAB’s neck”.

And you thought British hacks liked to give companies a good kicking.

The Herald Sun goes as far as to call for NAB to consider shutting down its UK operations and walking away from them. Blackfriar has given Yorkshire Bank enough criticism over the past decade to know when they’re deserved or not and these Australian rants simply aren’t.

While Yorkshire and Clydesdale’s decision to jump on the Bank of Scotland bandwagon in the mid noughties and lend money on dodgy commercial property was far from prudent, their reputation for sticking to traditional banking should pull them out of this mess.

Take a closer look at yesterday’s annual results.

Yes, Yorkshire and Clydesdale managed to report their first ever full-year loss, but this was due to the commercial property arm which stopped lending money last month.

The two UK banks are now hopeful of making a profit at the half year stage as the troublesome £5.6bn commercial property loan book has been passed on to the books of Australian parent company National Australia 
Bank (NAB), which will wind it down.

The real estate lending business contributed to most of the banks’ whopping £631m bad debt charge.

OK, yes, smacked hands all round for the previous management to risk such lending folly, but let’s look to the future.

Yorkshire and Clydesdale reported a pre-tax loss of £183m for the year to September 30, but this would have been a profit of £148m if the commercial property arm had been 
offloaded.

Following the exit from commercial property, Yorkshire and Clydesdale will be split equally between retail banking (personal accounts) and lending to small to mid-sized businesses (SMEs).

These are good, solid businesses.

Over the year to September 30, average gross loans and acceptances increased by £600m to £33.6bn. Mortgage customers were a key driver of this increase with mortgage growth rising by 9.8 per cent.

Average retail customer deposits grew by £500m to £25.3bn in what Yorkshire Bank described as “a highly competitive” market.

Yorkshire and Clydesdale have a solid proposition going forward – forget the south and focus on Yorkshire, the north and Scotland, where these brands are known and respected.

For those of the 1,400 workers who are being made redundant, this will be by the by.

Some 468 have left the company and Yorkshire and Clydesdale’s chief executive David Thorburn is hopeful of getting 70 per cent of the redundancies over and done with by next March.

Unfortunately, with Aussie investors baying for blood, these cuts are essential if Yorkshire and Clydesdale are to survive.

Let’s hope the worst is behind these two banks.

Mr Thorburn and his team need to pull impressive results out of the hat when half year profits are announced next April.

Regulatory probes make companies easy prey.

CPP Group’s confirmation of a takeover approach underlined this, as US credit card insurer Affinion Group mulls snapping up its embattled UK rival for a bargain basement price.

CPP has struggled since the Financial Services Authority first targeted it for mis-selling early last year.

CPP announced it was exploring “alternative financing and strategic options” in August, with a sale no doubt one of its options.

KBC Peel Hunt analyst Henry Carver believes a takeover offer is a “good solution for CPP and an attractive strategic move for Affinion”.

He said investors, who have seen shares fall as low as 3.37p, will gladly take what they can on CPP and write off losses.

But Blackfriar wonders if a fair price can be put on CPP until the full outcome of the FSA probe is clear. Otherwise CPP may prove 
a tough meal for Affinion to digest.