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May 7 2015

National Australia Bank reveals Clydesdale de-merger plan

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National Australia Bank will demerge its troubled Clydesdale Bank business and seek A$5.5bn (£2.87bn) in one of Australia’s biggest ever capital raisings. The bank said on Thursday that the fundraising would bolster its balance sheet and provide a buffer to meet tougher regulatory requirements. But it was also necessary to help NAB exit the Clydesdale business, which has been a drag on profits since the financial crisis, by the end of the year.

“In relation to exiting our UK banking business, we have been examining a broad range of options including those provided by public markets,” said NAB chief executive Andrew Thorburn. “It is a priority to exit this business, and we are today announcing our intention to pursue a demerger and initial public offering of the UK banking business.”

The bank will look to demerge 70-80% of Clydesdale to NAB shareholders while the remaining 20-30% will be sold through an initial public offering to institutional investors. UK regulators had told the bank that it would have to provide up to $3.2bn (£1.7bn) to shield the bank against costs from mis-sold financial products.

In April, Clydesdale was fined a record £20.7m by UK regulators for its treatment of up to 100,000 customers seeking payment protection insurance (PPI) payouts. British banks have already paid out £48bn ($92bn) to customers.

The capital raising will see NAB issue 194 million new shares, which is around 8% of its issued capital, at $28.50 each. The offer price was 19% below NAB’s closing price on Wednesday. NAB shares are currently in a trading halt.

The size of the raising came as a surprise to analysts and market watchers “You’re talking about the entire amount of money that was raised in theMedibank Private float, it’s a huge raising,” IG strategist Evan Lucas said “In the longer term it’s probably responsible but in the short term it’ll be a market headache.”

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