NAB ‘suffers blow’ over talks to sell UK banks

NBNK Investments, seen as the leading suitor to acquire National Australia Bank’s (NAB) UK operations, was said to have pulled out of takeover talks due to an “unrealistic” valuation being placed on the business.

Although both companies declined to comment on the reports, banking industry sources in the UK said it would be unlikely for the buy-out vehicle to have withdrawn its interest before the completion of NAB’s strategic review of its UK business.

NAB chief executive Cameron Clyne has said the review, which was launched in February, would be completed before the bank’s interim results due on 10 May. The review has been prompted by dwindling returns at its UK operations blamed on poor performance of the economy and high regulatory costs.

The talks to acquire the UK operations were reported by The Scotsman six weeks ago. NBNK, set up to act as a consolidator in the British banking industry in the wake of the financial crisis, is also at the centre of speculation over the future of 600-plus Lloyds Banking Group branches. The company lost out in the formal auction last December when Lloyds named the Co-op as the preferred bidder.

Although it cannot make a direct approach while the talks between Lloyds and the Co-op are ongoing, NBNK has made an indirect “alternative demerger” approach for the assets.

But claims that the Co-op might pull the plug on talks to take over 600-plus Lloyds Banking Group branches were dismissed by industry sources as premature.

NBNK is backed by an array of major City institutions, including Baillie Gifford, F&C Asset Management and UBS. Chaired by ex-head of Lloyd’s of London Lord Levene, other NBNK directors include Lord McFall, former chairman of the Treasury select committee, and Conservative peer Lord Forsyth of Drumlean, the former Scottish secretary.

Last month, a report by analysts at Citi said NAB may have to write down up to £500 million from the value of its UK commercial property book to clear the way for any sale of the UK banking operations.

Although a research note by the broker said that a sale of its UK interests could realise value for NAB shareholders in the form of a capital return, it argued a write-down would be needed given commercial property values have fallen 35 per cent since 2007 with speculation of a further drop by the end of 2013.

It added that it believed a full exit for NAB from the UK is feasible by 2014, which would release some £2.5 billion in capital.