IT USED to be the case that, of all the banks based in Scotland, you could rely on the Clydesdale to be reassuringly dull, writes Erikka Askeland.
While the other banks were issuing billions of pounds worth of shares that would become almost worthless, or being rescued from the brink of collapse in all-night meetings at the Treasury, the Australian-owed lender seemed to be sticking to its knitting. It was, by its own admission, safe, consistent and cautious – and perhaps feeling a bit smug about it.
Then there came a bit of payment protection insurance (PPI) mis-selling provision in 2011. But, at about £22 million all told, it was a drop in the ocean compared to what the big banks have since confessed to.
Around this time last year, the bank was in rude health – profits up, bad loans down. Its chief executive, Lynne Peacock, had retired after eight years to be replaced by herNo. 2, David Thorburn.
But the crack in the bank’s firmament didn’t become clear until early this year. In April, the new chief executive shocked everyone by announcing that the staid Clydesdale faced a “strategic review”, which would result in the loss of 1,400 jobs – about one fifth of its workforce. Its expansion into providing swank “financial solution centres” and lending on commercial property would also be put into reverse.
The “will they, won’t they” rumours that Clydesale’s owner, National Australia Bank (NAB), was looking to get shot of the UK business intensified. Last week, as a result of the review, the bank unveiled its first ever pre-tax loss of £183m for the year to 30 September. Bad debts almost doubled to £631m.
Thorburn put a brave face on the figures: “You aren’t seeing a deterioration, what you are seeing is a consequence of the issues we recognised,” he insisted. “There have been some challenges but there has also been good progress.”
Part of the bank’s main trouble was a £5.6 billion commercial property loan book that contained most of the UK bank’s losses. In October, this had been shifted to NAB’s balance sheet – too late for the losses not to hit the UK bank’s latest full-year figures.
Most of the book backs commercial property in what is now regarded as “secondary” locations – which is anywhere outside of London.
Interestingly, Thorburn – who was chief operating officer of the Clydesdale and Yorkshire banks while the lender piled £5.6bn into a toppy market before it crashed – is unrepentant.
“First of all, the global financial crisis came along in 2008 and, at that point, many banks were into losses and some banks needed state support – we didn’t,” he says.
He explains that the portfolio withstood the effects of the recession in 2008, but suffered as the UK economy continued to rumble along the bottom.
“What happened here was – late summer, early autumn last year – there was effectively a double-dip in the commercial property market outside London,” Thorburn says. “That second order effect hit our commercial property group. Unfortunately it wasn’t able to fully withstand that.
“We were holding our own. Our results were reasonable, all things considered. When the market took a further downturn last year, at that point we realised there was a bit of an issue.
“We had a detailed look at the strategic review and decided it was better all around for the portfolio to be taken out of Clydesdale and put into parent company’s balance sheet.
“It is a very different story to be affected by the double dip as compared to first time around. It’s unfortunate – a number of our customers who were slowly but surely trading their way out of a difficult market position they found themselves in 2008 couldn’t withstand a second downturn. It had a knock‑on effect on our business.”
He insists the transfer of the loan book to NAB is not a matter of Clydesdale “washing its hands” of its customers. And while the book is now being managed by NAB’s distressed loan specialist, Rick Drury, from London, Thorburn says the plan is “taking the book through to maturity” – as opposed to selling it off at a discount to a hedge fund for pence on the pound.
“However long that takes – it might take years,” observes Thorburn. “With customers it depends on the nature of their agreement with us.”
But the bank’s Australian investors are less than impressed by the performance of the UK bank – chairman Cameron Clyne last week pleaded for a “patient approach” to the losses the UK business has inflicted on Australia’s fourth-largest lender.
Thorburn, who resigned from the NAB board in August to spend more time fixing the problem UK bank, said Clyne has also been spending more of his time in Britain to help him.
“I’ve got more time with him. He can spend more time in the country to talk about the issues in the business so we can move a bit faster. It is a lot easier if you can talk to your chairman face‑to‑face across the table.”
Thorburn is gratified to see that, despite facing such rough economic conditions, there is some sign of progress. A stepped-up marketing campaign has seen the bank grow its mortgage book 10 per cent last year and its current account business is growing faster than it has for years, Thorburn says.
And the transfer of the bad loan book will be “transformational” – he says the bank would have made a profit of about £148m without it hanging around the neck of its 2011-12 figures.
Thorburn, who except for a nine-year stint at TSB Scotland, has worked man and boy with the Clydesdale since he joined as a graduate trainee in 1978. For him the focus is now running a “back to basics”-style bank – perhaps the one most people had already thought it was.
“Actually it is good for the bank,” he says. “Going through the change is difficult, but in actual fact getting back to our heritage and core strengths is no bad thing.”