Australia's NAB opts for UK bank revamp over sale
MELBOURNE/LONDON (Reuters) - National Australia Bank illustrated the tough market facing sellers of UK banking assets on Monday, scrapping plans for a sale of its British banking operations and saying it would instead shrink them by cutting 1,400 jobs.
The Australian bank, which operates 337 Clydesdale and Yorkshire bank branches, looked at a number of options including a sale or expansion but decided neither was realistic given the UK's return to recession last week.
"While there's been much speculation about the prospects for an outright sale of Clydesdale Bank the reality is that, given the current pricing of listed UK banks and the difficulty in executing a clean sale, it is unlikely to be a realistic option which could provide value for NAB shareholders," Chief Executive Cameron Clyne told analysts on a conference call.
"Growth through acquisition in the UK is not an attractive option and one I am prepared to rule out," he added.
Cavendish Asset Management fund manager Paul Mumford said regulatory hurdles and the complex mechanics of deals involving banks were proving a tough barrier to takeover activity.
"You have to jump through a number of pretty strong hoops in order to satisfy the regulators that you've got a proper group structure in place after the deal. That may have put off some of the potential purchasers," Mumford said.
Those difficulties have been experienced by other UK banks.
Lloyds has struggled to find a buyer for 632 branches it needs to sell for competition reasons. It could be forced into the alternative option of an initial public offering (IPO) after a lack of interest led to just two formal bids.
Both of those offers, by fledgling banking operation NBNK and the Co-Op, have been plagued by complications, mainly relating to regulatory concerns.
NAB's decision not to sell the Clydesdale and Yorkshire bank branches will reduce the options available to NBNK, which had been linked with a possible bid.
NBNK was set up in 2010 by former Lloyd's of London insurance head Peter Levene, with the aim of bringing competition to a market dominated by four lenders.
However, it could find its options running out if it cannot prove its credibility to Lloyds' board, which is considering other options.
"If Lloyds use the IPO alternative that leaves them (NBNK) in limbo," said Cavendish's Mumford.
NAB said it would scale back its British business, close its commercial real estate business and focus on lending to small and medium businesses in the north of England and Scotland.
"The review considered several options and concluded that downsizing and changing the risk appetite of the core UK franchise and bringing it back to its more traditional business model is the option that best serves the interest of shareholders," Clyne told analysts.
NAB said it would take a 455 million pounds ($740 million) charge from the restructuring which it hopes to complete by 2015 and which will see it close bank offices and take on most of the unit's commercial real estate exposure of 6.2 billion pounds ($10.1 billion).
NAB said on Monday its first half cash earnings was seen at A$2.82 billion (1.80 billion pounds) up 5.7 percent, in line with analysts' expectations. The UK unit was seen posting a loss of 25 million pounds in the first half.
In addition to 195 million pounds in restructuring costs, NAB will write down the goodwill associated with Clydesdale by 141 million pounds and set aside a further 120 million pounds to cover exposure relating to payment protection insurance.
Profits were roughly in line with what some analysts expected, although bad debt charges rose 14 percent to A$1.13 billion. NAB said it expected to increase its interim dividend to 90 cents a share.
NAB said the changes would cut the UK unit's reliance on wholesale funding, which had become expensive after credit rating downgrades, move the business to a more deposit-funded base and reduce group funding support to the UK unit by 5 billion pounds.
NAB said an immediate sale of the unit, valued by analysts at $5.5 billion (3.3 billion pounds), was ruled out because it would fetch less than book value.
The restructure would cut the stand-alone Tier I capital ratio, a measure of a bank's ability to absorb losses, of the group by 17 basis points. NAB said its group Tier 1 capital ratio would be about 10 percent as at March 2012.
($1 = 0.6159 British pounds)
($1 = 0.9577 Australian dollars)
(Reporting by Matt Scuffham in London and Sonali Paul and Narayanan Somasundaram in Melbourne; Additional reporting by Amy Pyett; Editing by Lincoln Feast, Eric Meijer and Alexander Smith)
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