National Australia Bank Floats UK Banking Arm CYBG at Sharp Discount -- Update
February 03 2016 - 7:04AM
Dow Jones News
By Margot Patrick
LONDON-- National Australia Bank Ltd.'s three decades in the
U.K. ended with a whimper Wednesday as it floated its British
banking arm at a sharp discount.
Scotland's Clydesdale Bank and northern England's Yorkshire
Bank, together dubbed CYBG PLC, were valued at about GBP1.6 billion
(about $2.3 billion), or roughly 40% of book value. NAB Group Chief
Executive Andrew Thorburn said it was a good response from
investors in volatile markets, while CYBG Chief Executive David
Duffy said the newly independent bank could play a key role in an
anticipated consolidation of Britain's smaller banks.
NAB ended years of speculation in November by laying out plans
to exit the U.K. and focus on its more-profitable operations in
Australia and New Zealand. It paid GBP420 million for Clydesdale
Bank in 1987 and GBP900 million for Yorkshire Bank in 1990, just as
Britain was entering a recession and housing market downturn.
The businesses never achieved the profits or scale that NAB
executives had hoped for, and were hit hard by souring commercial
property loans after the U.K. entered another deep recession in
2008. The bulk of the commercial real estate debt was transferred
to NAB in 2012 and NAB began an effort to shrink and simplify the
U.K. business.
"It was a burden for NAB in historical terms when they had not
addressed the failings in the bank. Now it's the largest challenger
in the U.K. in SME lending and retail, and one of the best
capitalized banks," Mr. Duffy said in an interview.
A clutch of small banks, so-called "challengers" to the big five
British banks that dominate lending and mortgage markets, have
sprung up in the past several years and are expected to eventually
merge. Spain's Banco de Sabadell SA snapped up TSB Banking Group
PLC last year, while Royal Bank of Scotland Group PLC is preparing
to sell or spin off its Williams & Glynn unit, potentially
sparking further consolidation.
"We would be one of the logical consolidators in the market,"
CYBG's Mr. Duffy said. "There is a logic to consolidation if and
when it becomes appropriate for our shareholders."
Clydesdale Bank, based in Glasgow, has around 140 branches
across Scotland. Yorkshire Bank, headquartered in Leeds, England,
has around 180 branches in the north of England and Midlands.
The shares offered in the CYBG float were bought by
institutional investors in the U.K., U.S. and Australia, Mr. Duffy
said. Existing NAB shareholders received 75% of the shares through
a demerger of the unit from NAB.
NAB's U.K. exit followed the bank's retreat from the U.S. last
year when it sold shares in subsidiary Great Western Bank. The
moves come as banks across the world are narrowing their
geographical and business focus to adapt to tougher regulatory
conditions.
CYBG represented 8.8% of NAB's total assets as of Sept. 30, 2015
but contributed only 3.3% to pretax earnings, NAB told shareholders
last year. Overseeing the business was taking up "a
disproportionate share of NAB board and management resources." A
series of fines and conduct charges at CYBG over missold products
had also cut into NAB's cash earnings, it said.
Write to Ian Walker at ian.walker@wsj.com and Robb M. Stewart at
robb.stewart@wsj.com
(END) Dow Jones Newswires
February 03, 2016 06:49 ET (11:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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