CLYDESDALE Bank's controversial transfer of its troubled commercial real estate (CRE) portfolio to parent National Australia Bank (NAB) has seen it return to profit, slash bad debts and boost its capital surplus.
The cleaned-up bank, in the throes of cutting 1400 jobs, including 100 in Scotland, is now preparing to launch a rebranded current account backed by new technology and is briefing staff that it is gearing up for growth.
NAB, which views its UK division comprising Clydesdale and Yorkshire banks as its "problem asset", has reported that its restructuring announced 12 months ago is "ahead of schedule" and the banks are performing well.
The division's chief executive, Glasgow-based David Thorburn, said the banks were already 70% through the headcount reduction due to be completed by September 2015.
He said: "Simplifying our business model to concentrate on our traditional strengths, we have successfully reshaped the geography, risk appetite and the composition of business banking."
The two banks reported pre-tax earnings of £54 million in the first half of the NAB financial year to March 31, a turnround of £92m from the £38m loss a year earlier.
Bad debt charges were slashed by two-thirds, from £282m to £91m.
The Tier 1 capital ratio measure of financial strength rose from 9.6% to 11.8%. Average mortgage balances were up 9%, in a market that was up only 1.5%.
However, average gross loans and acceptances fell by £6.3bn to £27.4bn, average business balances were down by £1.8bn excluding the CRE transfer, and small business lending also fell, "reflecting negative system growth".
Lower income, "impacted by the economic environment and the transfer of the CRE portfolio", saw the cost to income ratio increase from 58.8% to 70.4%.
Mr Thorburn said: "We are making progress with cost reduction efforts, mortgage lending is going well, and behind the scenes we are investing a lot of money in new technology, to launch a mobile banking app and contactless cards."
A rebranded current account would launch next month, in readiness for industry moves to encourage account switching.
The chief executive, who stood down from his position on the NAB board last year to concentrate on the restructuring, said he was now touring bank sites.
He added: "I don't want to pretend everything is sorted, but we are on the front foot with the staff."
He said the bank's improved capital ratio meant it was 92% customer–funded and as yet had no need of the Funding for Lending Scheme, though the banks might apply to FLS by the end of 2013.
Mr Thorburn said the major factor in the financial turnaround had been "the successful transfer of £5.6bn of commercial real estate assets to our parent in October".
NAB said the portfolio had now "pleasingly" shrunk to £5bn, slightly above the previously-quoted £4.8bn.
Asked why so many affected small businesses had complained about the CRE transfer, prompting MPs' questions in the House of Commons about a heavy-handed squeeze on borrowers, dampening effects on the economy, and lack of accountability in the switch to NAB, Mr Thorburn said: "Any customer who is unhappy with the result of that we very much regret and we do try to do something.
"It is one of the unfortunate consequences... colleagues at NAB are doing their level best and there should not be any less accountability."
NAB said the CRE portfolio had made a loss of £149m, after a bad debt charge of £185m – a reduction from the £249m six months earlier.
The Melbourne-based bank was reporting a 3.1% rise in earnings on a year earlier, and a reduction in underlying bad debts on the previous half-year.
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