NATIONAL Australia Bank believes now would be a "rotten time to sell" its Clydesdale and Yorkshire Bank businesses, with the market at the bottom and the UK economy "on its knees", and is pledging there will be "no fire sale".
Revealing NAB’s thinking yesterday, executive director of finance Mark Joiner highlighted the possibility of increasing the return on equity made by Clydesdale and Yorkshire and exiting “a few years later”, signalling potential for a sale or flotation of the UK assets at that point.
He said the UK economy was “expected to be on its knees for 10 years or so”.
Mr Joiner’s comments provide some clarity for more than 4400 Clydesdale Bank employees in Scotland, around 2600 of whom are in Glasgow and neighbouring Clydebank, about NAB’s intentions toward the UK business.
His remarks, in an interview with Reuters, are probably the most expansive yet from NAB about its plans for Clydesdale and Yorkshire. And he also emphasised that, contrary to recent speculation, NAB would not be going back into the auction process through which Bank of Scotland owner Lloyds Banking Group is selling about 630 branches and related assets. The assets being sold include the 185-strong Lloyds TSB Scotland network and Edinburgh-based Intelligent Finance.
There has been speculation for years that NAB might exit the UK by selling Clydesdale and Yorkshire and employ its capital in markets which could offer higher returns. There has also been talk that NAB might bulk up in the UK through acquisition.
Mr Joiner’s comments signal strongly that NAB is no longer interested in expanding its presence in the UK banking market through acquisition, preferring an eventual exit.
NAB is believed to have done diligence work on the up-for-sale Lloyds assets, in a process which is almost certain to have involved Clydesdale chief executive David Thorburn, but it withdrew from the auction process in July.
Mr Joiner, emphasising NAB was no longer interested in Lloyds’ up-for-sale assets, said yesterday: “Why do we need to bias our capital to the UK when the economy is expected to be on its knees for 10 years or so? There are growth opportunities in Australia.”
There were reports earlier this month that NAB had held exploratory talks with NBNK, the UK bank set up to acquire assets and chaired by Lloyd’s of London insurance market chairman Lord Levene, and other potential suitors for Clydesdale and Yorkshire.
However, it appeared that these discussions had come to nought and Mr Joiner’s comments yesterday would seem to confirm this.
Mr Joiner said: “The UK business does not lose money. The market is at the bottom and so is... sterling. It is a rotten time to sell. There will be no fire sale.”
He added that the bank did not need to free up capital and would not take a big writedown.
Mr Joiner, raising the prospect of sale or flotation in a few years’ time, declared of Clydesdale and Yorkshire Banks: “We would prefer to own the asset, raise the returns and exit a few years later, or IPO (initial public offering) it... there are options.”
Clydesdale and Yorkshire have a share of about 2% to 3% of the UK banking market, and are profitable. However, they have been proving a drag on NAB’s overall returns. They are believed to make a single-digit-percentage return on equity, compared with 16% for NAB as a whole.
Mr Joiner said Clydesdale and Yorkshire Banks were on the path to a double-digit-percentage return on equity, in the low teens.
There had been speculation during the summer that NAB, which stood out as a heavyweight bidder at the start of the Lloyds Banking Group auction, might re-enter the bidding process if Lloyds were to cut the yawning funding gap between the deposits and loans being sold off.
Lloyds has been moving to do this, according to reports, but Mr Joiner made it clear yesterday this would not tempt NAB back into the auction.
He said: “The fact that they (Lloyds) may sweeten the deal does not change anything for us.”
A spokesman for Clydesdale Bank in Glasgow did not comment yesterday on Mr Joiner’s remarks.
However, he pointed to previous remarks by NAB chief executive Cameron Clyne. Mr Clyne said the number one priority was “organic growth” but has emphasised that “in this climate, it is also only natural that we would look at other options available to us... against strict financial criteria with our key focus to generate value for our shareholders”.
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