Clydesdale Bank will early in 2016 regain the independence it last had almost a century ago.

Its owner since 1987 National Australia Bank will give 75 per cent of the shares to its own investors, but the remaining 25 per cent will be floated on the London market.

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In 2011 a senior NAB executive remarked that the bank preferred “growth opportunities in Australia” to investing in a UK economy “expected to be on its knees for 10 years”.

Four years on it is ironically the buoyancy of the UK economy which has encouraged NAB to join the wave of ‘challenger bank’ flotations – while Australia is feeling the downwind from China.

In June the bank brought in David Duffy, who turned round Allied Irish Bank after the crash, to steer the bank through the transition. Mr Duffy has voiced his belief that the Clydesdale/Yorkshire regional bank, with 300 branches and a £28bnloan book, can mount an effective challenge to the big players.

But after years of apparently failing to attract a buyer, will the Glasgow-based bank make a go of independence - or be snapped up by a rival?

The flotation is expected in February, and the bank has already been sounding out institutions in London and Edinburgh. One fund manager commented: “The business itself has got two very strong regional franchises and that provides a good stable base. Against that, a lot of the investment case will be centred round opportunities for cost-cutting.” He said Mr Duffy’s turnround at AIB was based largely on “cutting bank branches and doing more online”, adding: “It won’t be easy to grow the business as the brands are not going to extend nationally very easily, the idea you can grow across the UK through online and mobile banking sounds rather far-fetched....the attraction will be the scope to cut costs and therefore improve profitability.”

Investors also feel themselves to be in a strong position when it comes to setting a flotation price, the fund manager said. “NAB have made the decision to go ahead, they can’t pull away now like a private equity house can. The investment banks will try to position it like a challenger bank, the reality is it is much closer if not very similar to TSB.”

The TSB spin-off from Lloyds in 2014 was less regionally concentrated (though Scotland had 185 of its 630 branches) yet it was priced at a 20 per cent discount to book value, compared with the premium pricing of challenger bank listings Aldermore and Shawbrook in 2015.

Clydesdale reported cash earnings of £156 million in the 12 months to September 30, below the previous year’s £158m. One reason given was reduced fees on personal current accounts, illustrating the competitive scramble for new business which saw Clydesdale in 2015 offering a big cash switching incentive for the first time.

Mr Duffy said in October he expected the bank’s small business lending to return to net growth over the current six-month trading period, as the bank saw “the beginning of a trend” for investment in capital machinery and in staff. He also cited developments such as a new flagship branch in Leeds combining corporate and retail banking, a 24/7 outlet with cash withdrawal and pay-in machines, and a plan to introduce video-conferencing facilities into all branches – following the example of Nationwide.

The new boss is talking about investment in customer service and digital technology than in cutting costs through branch closures, although he acknowledges that those will take place.

Intriguingly Mr Duffy has also said the listed bank will need “one year of providing credibility” to enable it to make a bid for another bank – or to sell out at a good price. Already in the frame are those busy Spanish predators Santander and Sabatell – which snapped up TSB for £1.7bn last March only nine months after its £1.3bn listing. Sabatell said recently that acquisitions were off the menu - but only for a year.

Mr Duffy has already accepted that NAB’s “unloved asset” will come to market at a discount to its £2bn to £2.5bn book value, giving him plenty of scope and incentive to ad

PANEL

To offload its troublesome offshoot, the Melbourne-based bank has had to provide an indemnity against misconduct liabilities of up to £1.7bn.  “For a bank the size of the Clydesdale that is a pretty big number,” said one Edinburgh fund manager.  

The indemnity amounts to more than eight times the bank’s last stated profit of £203m. A comparison with other challenger banks shows Santander made provisions of £1.2bn on a profit of £1.4bn while Nationwide with a £1bn profit made a £173m provision. 

Unlike other banks, the Clydesdale’s misdemeanours can hardly be called historic. Almost all of its whopping provisions for penalties arising from the mis-selling of PPI have emerged in the past year, most recently £465m in a single half-year.  In the final 18 months of previous chief executive David Thorburn’s reign, the bank suffered the indignity of two fines from the regulator totalling over £30m, a severe reprimand, and a critical report by the Treasury Committee into its selling of complex loans to SMEs, which the committee concluded were designed to escape regulation.  

According to Mr Duffy’s stand-in predecessor Debbie Crosbie, the bank’s governance has had a “complete overhaul”.  But as The Herald reported last week, some PPI complaints are still taking up to seven months to settle.