Comment: Clydesdale flotation gets there in the end

THE divestment of its UK operation by National Australia Bank (NAB) has taken the scenic route, but the group finally has a firm plan to demerge the business by the end of this year. In truth, NAB and its Australian investors grew weary of Clydesdale Bank (also including Yorkshire Bank) and its drain on the parent’s comparatively much more resilient antipodean earnings some years back.

The poor prospects for the UK economy for years after the financial crash, allied to some issues at Clydesdale such as the mis-selling of payment protection insurance and some hedging products to small businesses, were a disagreeable cocktail for NAB to swallow as time went by.

Having said that, the demerger solution hit upon by NAB and its advisers looks sound. By offering 20 to 30 per cent of Clydesdale to institutional investors, the UK initial public offering (with a secondary Aussie listing) will be riding the stock market appetite for new UK challenger banks.

Witness the successful floats of TSB, Aldermore and Shawbrook. Yesterday’s one-third jump in Clydesdale’s interim profits to £118 million, with bad debts down by more than half, a cleaned-up balance sheet and a recovering UK economy, all suggest that investors may feel positive about the float.

Retaining 70 to 80 per cent of the business for NAB’s existing shareholders also has its attractions. It gives those investors an opportunity to share in the upside of the newly floated business, surely deserved after the pain they have had in recent years from the UK under-performance. And it conveys to new investors that existing shareholders do not have so little faith in Clydesdale’s prospects that they are bailing out at the first chance.

As Clydesdale Bank’s acting chief executive Debbie Crosbie said, if NAB had decided on a full IPO alternative, it would have taken longer to achieve by being done in tranches. It would have been longer and more uncertain.

Doing it this way, there will be a clean break between NAB’s involvement with the UK arm and allow a clear new strategy to be set by Clydesdale’s revamped management.

The relationship with Down Under had run its course, patience had been broken. This IPO will draw a definitive line under it and allow a new beginning.