CLYDESDALE and Yorkshire Banks have returned to profitability in their first trading half after last year’s losses prompted a sharp overhaul of the UK operations of National Australia Bank.
And there’s the rub. It is far too early to say the return to the black reflects better trading conditions rather than a tailwind from the restructuring ordered in Melbourne.
Bad debts at the two subsidiaries have plummeted, always a boost to the bottom line. But this is overwhelmingly due to the transfer of £5.6 billion of toxic property loans to the parent last autumn.
In short, the parent has got the child out of trouble in the short term. Only time will tell two things: whether a streamlined, simplified NAB UK goes from strength to strength; and whether it does so as part of an increasingly disenchanted parent’s stable, on its own, or as part of another bank following a takeover.
Notwithstanding these better numbers, Clydesdale and Yorkshire banks remain operations shrouded by uncertainty. They will take comfort that at least their financial buffers look better, though. As the Chinese say, the long journey starts with a single step.
Clydesdale has a healthy Tier 1 capital ratio of 11.8 per cent, with its lending now over 90 per cent funded by customer deposits.
And it is well over two-thirds the way through a costcutting programme that will see 1,400 jobs go by September.
But the cumulative financial and personnel restructuring is no more than a platform on which to build a revitalised business in the medium term.
And that will depend on how effective NAB UK is in lending to households and small and medium-sized businesses, the intelligence of its credit decisions, and hopefully the avoidance of further product mis- selling controversies such as interest rate swaps to SMEs.
Its small business lending fell in the first half, suggesting there is little help to be expected from that quarter in the near future.
Fierce high street competition for deposits in this low-interest-rate era largely saw NAB UK tread water in this area during the latest six months. Again, not a helpful backdrop for recovery (although its mortgage lending is doing OK).
Taken altogether, we are unlikely to know how the business is really doing until a couple of years farther down the line, when restructurings are not clouding the picture.
Advertising showing signs of resurgence
THEY say that advertising is one of the first sectors into a downturn, and one of the first to signal a recovery. Companies tend to slash ad spend as a non-profit centre quickly as economic clouds gather, and increase it when the outlook improves.
So, a bit of cheer for the rest of society.
A survey of their members by the Advertising Association and trade body WARC indicates that what has been a pretty depressed sector is on the brink of resurgence.
The UK ad market rose 2.3 per cent last year, partly helped by the Olympics and Queen’s Jubilee, admittedly. But the survey forecasts that ad spend will rise 2.7 per cent in 2013 and a beefy 5 per cent in 2014.
With the caveat that advertising people innately talk up prospects, if such positive numbers do pan out it will not only boost adland, but the wider economy and the rest of us as well.