HIGH street lender Clydesdale Bank is facing an extra £500 million hit this year to compensate customers who were mis-sold loan insurance and complex interest rate hedging products.
However, the Glasgow-based bank, which is to be spun off from parent National Australia Bank (NAB) after almost 30 years of ownership, said it was well positioned for growth as it prepares for life as a standalone business.
Clydesdale, once dubbed a “problem asset” by NAB, has already racked up more than £800m in costs related to payment protection insurance (PPI) compensation, and is now facing a further hit of between £290m and £420m to redress customers who were sold the policies, NAB said in a trading update.
In addition, the bank will have to take a further provision of between £60m and £80m in its full-year results to cover compensation for business customers that were sold interest rate swaps – complex products marketed as protection against rising rates, but which led to a sharp increase in charges when borrowing costs fell.
Updating investors on its third-quarter trading performance, NAB said that any provisions booked in its results for the year to the end of September would form part of the £1.7 billion figure that the Prudential Regulation Authority has already told it to pump into Clydesdale – which also owns the Yorkshire Bank brand – for “future legacy conduct costs”.
However, the Melbourne-headquartered group warned: “There continue to be a wide range of uncertain factors relevant to determining the total costs associated with conduct-related matters.”
Progress has been made on our intention to pursue a demergerNAB chief executive Andrew Thorburn
The note of caution came as NAB said third-quarter earnings had risen about 9 per cent to A$1.75bn (£832m), although profits in the UK were pushed lower due to its contribution to the Financial Services Compensation Scheme, a statutory initiative that is funded by the finance industry to pay out compensation to customers when a firm cannot meet its liabilities.
Clydesdale chief executive David Duffy said: “In the third quarter, we have had solid earnings and strong growth in mortgage lending and customer deposits. We continue to focus on delivering value and improved services to our customers by investing in new digital channels and the continued regeneration of our branch network.”
Duffy, the former boss of Allied Irish Banks who took on the role in June, added: “I am pleased with our progress in all areas and Clydesdale Bank is positioned well to deliver on our growth ambitions.”
NAB has owned Clydesdale since 1987 and Yorkshire since 1990, but is planning to sell up to 30 per cent of its UK business to institutional investors before the end of this year. The remainder will be held by the Australian group’s shareholders.
Andrew Thorburn, chief executive of NAB, said: “Substantial progress has been made on our intention to pursue a demerger and IPO of Clydesdale Bank over the last three months and we will provide the market with a detailed update of the proposed transaction at our 2015 full-year results.”
Clydesdale and Yorkshire have about 7,000 staff and more than 300 branches between them. They had long been the subject of sale speculation after racking up hefty losses for their parent through property loans turned sour. In April, Clydesdale was fined a record £20.7m after the City regulator found “serious failings” in the way it handled thousands of PPI complaints.