Clydesdale poised for float after profits jump

Clydesdale's profits jump came as bad debts more than halved in the latest six-month trading period. Picture: TSPL

Clydesdale Bank is to be demerged from its Australian parent through a flotation on the London Stock Exchange by the end of the year.

Between 20 and 30 per cent of the shares will go to new institutional investors in the initial public offering (IPO), with 70 to 80 per cent being retained by existing shareholders of National Australia Bank (NAB). Some analysts suggested it could value the business at £2 billion.

The UK business, which has about 7,000 staff and more than 300 branches, has long been the subject of sale speculation after it racked up hefty losses for its parent through soured property loans and misconduct charges.

Today’s announcement came alongside much better interim figures for Clydesdale, which also owns Yorkshire Bank. Pre-tax earnings jumped 33 per cent to £118 million in the year to 15 March on the back of a recovering UK economy.

Under the demerger plan, the UK’s Prudential Regulation Authority, charged with making sure British banks are well-capitalised, has said that NAB will need to provide up to £1.7bn in capital support for the floated business. Negotiations are continuing with the regulator, Clydesdale said. The money will be to provide financial backing against potential future charges for historical misconduct. Last month Clydesdale was fined a record £20.7m after it was found that thousands of payment protection insurance (PPI) claims may have been unfairly rejected.

Debbie Crosbie, Clydesdale’s acting chief executive, said the demerger exit model would “deliver greater certainty” than a full IPO.

She said: “This is a clean and definite exit from the business by National Australia Group, but allows its shareholders to share in any upside going forward. If it was a full IPO there would have to be a series of share offerings over a period of time. Obviously it is for individual (NAB) shareholders to decide, but we are confident that it will be well-received. We are pretty optimistic.

“I think most people will want to benefit by sharing in the upside. We are through the worst in the UK.”

NAB is understood to have taken soundings of investors and the response to the demerger has been positive.

Group chief executive Andrew Thorburn said an exit from its UK business was a “priority” for the Melbourne-based group, which also announced plans for a A$5.5bn (£2.9bn) rights issue to strengthen its balance sheet.

Clydesdale Bank’s profits jump, which include Yorkshire’s earnings, came as bad debts more than halved to £24m in the latest six-month trading period, while it benefited from £2.4bn of mortgage growth.

“We continue to punch above our weight in the mortgage market,” Crosbie said. Clydesdale also did around £500m of new small business lending, seen as a key attraction for potential investors in the flotation. Average deposit volumes rose £900m to £24.2bn. However, the net interest margin – the difference between what banks charge on loans and pay on deposits – fell to 2.18 per cent from 2.25 per cent due to competitive pressures.

Clydesdale also said more work was needed on the key cost:income ratio, which was virtually unchanged at the perceived high level of 70.4 per cent.

The chief executive said this year would see more work on centralising services for customers under one roof where possible, with a more widespread digital offering.

The shake-up will involve 19 branch closures, including sites in Denny, Dollar, Dundee, Forres, Hamilton, Helensburgh and Silverburn in Glasgow.

Crosbie said the lender was “not that exercised” by concerns that any potential hung parliament following today’s UK general election might dent the new mood of economic confidence that had helped drive the bank’s profits recovery.

She added: “We are focused on doing the right things for our customers.”