THE public decision by National Australia Bank to ditch its Clydesdale Bank and Yorkshire Bank subsidiaries is surely one of the longest and most predictable corporate divorces in history. The significant under-performance of NAB UK compared to the parent group’s more lucrative business in Australia and New Zealand has been long-running.
That led to chronic, in all senses, pressure from institutional investors for NAB to cut its losses in Britain after well over two decades here, and invest capital nearer to home where the returns were palpably better.
For a while, that disillusionment both internally and externally with NAB’s UK foray had as much to do with more attractive banking conditions Down Under than anything Clydesdale and Yorkshire were doing particularly wrong over here. Those banks did the simple things well, from mortgage lending to small business lending, with some icing on the cake provided by advice to the owners of those small businesses on the management of their private wealth.
However, the gradual growing doubt about the value of the UK arm compared to operations in Australasia was exacerbated when it became clear through a set of massive provisions over years that NAB UK was involved in the mis-selling scandals as well.
Most notably, these were payment protection insurance (PPI) mis-selling and inappropriate selling of interest rate hedging products to small businesses. The business also took a bath on property loans that soured.
Many hundreds of millions of pounds in charges were involved. It must have looked from head office in Australia, a country where some of the bank mis-selling controversies in the UK and treatment of customers generally here is looked at with some incredulity, that it not only had an under-performing subsidiary but also one not untainted by the tarnished industry zeitgeist over here.
After years of confusingly strong signals to the market that NAB wanted out of Clydesdale and Yorkshire, but without any follow-through, the key seems to have been new chief executive Andrew Thorburn coming on board last summer.
He decided quickly that it was time to exit the UK sooner rather than later, particularly as the parent helped to clean up NAB UK’s balance sheet to make it more palatable to trade buyers, private equity or stock market investors.
Indeed, the sheer bluntness of Thorburn’s statement that quitting the UK is an “absolute priority” shows how much the parent has run out of patience that it is placing itself in a weak position in securing the best terms for any divestment route.
You would want to play corporate poker with an NAB management in this transparently frustrated mood of putting all its disillusioned cards on the table.
And for Clydesdale and Yorkshire? With a largely cleaned up balance sheet and better underlying profitability, it is arguably better off independent than with an understandably unsympathetic parent thousands of miles away.
That’s one scenario. The other is maybe for one of the new challenger banks (TSB springs particularly to mind) to see the established branch network as a very quick way to expand market share.
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