TSB float creates options for NAB

Tomorrow’s listing of UK bank TSB will be a key development in NAB’s plans to offload its UK loan portfolio.

The opening up of the IPO market in the UK and the subsequent float of Lloyds offshoot TSB opens up options for National Australia Bank that have not existed in previous years, according to Credit Suisse analysts.

Credit Suisse director and banking analyst James Ellis said NAB has been “quite open” about its desires to exit its continued business with Clydsedale Bank over time.

“The opening up of the IPO market over there with TSB starting to trade on Friday and the fact you have now had the second asset come to market, that’s an important development,” Mr Ellis said.

“It opens up options for NAB which just haven’t been there in previous years,” he said.

The Lloyds float is the most significant float in the UK at the moment, according to Credit Suisse analyst Jarrod Martin.

“It is five per cent of the UK branch network, it is a similar size in terms of balance sheet - $20-odd billion dollars, fully deposit funded, it is probably more of a retail-focused bank than the Clydesdale business and more south east UK, whereas Clydesdale is more Midlands and Scotland,” Mr Martin said.

“The TSB listing will be key in terms of NAB’s thoughts,” he said, adding that he expects the major bank to reach a deal within 12 months.

“On a 12-month view I think you will see something from it.”

Mr Martin said NAB has yet to see an offer but will be open to different avenues of exit.

“An IPO might be one way; a trade sale might be something they consider as well,” he said.

“I don’t think there is any preferred method of exit they would look at.”

On June 2, Mortgage Business reported that NAB is looking to offload its £600 million portfolio of non-performing loans in the UK.

“The key thing NAB did was to take the commercial real estate book, which was quite impaired, and to shift it on to the Melbourne balance sheet,” Credit Suisse analyst Mr Ellis said.

“But then you leave all the capital and all the deposits behind, so those ratios instantaneously improve,” he said.

“It also gave them stability to demands for injections of capital and stability in terms of their credit rating.

“It looks different now, but it looks lower risk.”

The bank posted a net profit of $2.86 billion for the half year to March 31, buoyed by a substantial reduction in bad and doubtful UK debts.

The charge for bad and doubtful debts (B&DDs) was $528 million across the entire group, down 52 per cent from the prior corresponding period – and 37 per cent lower than the charge for the September 2013 half year.

Cash earnings in the NAB UK Commercial Real Estate (CRE) run-off portfolio improved in the half year to a loss of £7 million (AU$12.6 million), compared to a £149 million (AU$270 million) loss in the March 2013 half year, and a loss of £90 million (AU$162.8 million) in the September 2013 half year.

Commenting on the result, NAB chief executive Cameron Clyne said the recovery of the UK arm of the business is "tracking very well".

"It is still a challenging environment and you will see in this result that we have quite a significant uptick in conduct [related charges]," said Mr Clyne.

"The UK economy is improving, the GDP is growing, and house prices are increasing in Yorkshire and Scotland, but this has been a very troubled economy," he said.

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