National Australia Bank reveals Clydesdale demerger plan

National Australia Bank has been trying to offload Clydesdale for years

Clydesdale Bank is to be split from its Australian parent company and then floated.

The Glasgow-based lender, which includes Yorkshire Bank, is to have 70% to 80% of its shares transferred to existing shareholders of National Australia Bank (NAB).

The remaining 20% to 30% of shares in a new entity, known as "listco", will be offered to institutional investors.

NAB says it intends to complete the break-up by the end of this year.

Shares are to be listed on the London Stock Exchange and traded also on an Australian market.

"This is a substantial and complex undertaking, subject to risk and addressing a number of issues, of which the most substantive is conduct mitigation," the bank stated.

Misconduct

NAB has been told by the British regulator, the Financial Conduct Authority, that it has to provide up to £1.7bn in cover against the potential costs of misconduct and mis-selling.

The bank says there remain "significant risks and uncertainties" around conduct.

It recently faced a £21m fine for failing to handle mis-selling claims properly.

One team tried to tamper with customers' records in an effort to reduce pay-outs, and then used those records to mislead the financial services ombudsman.

The announcement about a demerger was made from NAB's Melbourne headquarters and follows years of trying unsuccessfully to find a buyer for the Clydesdale, which constitutes NAB's European retail division.

NAB's new chief executive, Andrew Thorburn, made it clear last autumn that shedding the UK subsidiary was a high priority for 2015.

It has been seen as a drag on the Australian lender's performance, with the parent company taking on a troubled commercial lending book worth £5.6bn in order to strengthen the subsidiary.

Improved results

The chief executive's announcement of an initial public offering (IPO) or flotation came with NAB's half-year results.

Clydesdale Bank reported a 33% improvement in pre-tax cash earnings to £118m. Gross lending increased by 5% to £28bn and mortgage lending was up 15%.

A £11m one-off spend was made to help attract customers to current accounts and tax-free individual savings accounts.

Average deposit volumes over the past half year averaged £24.2bn, up by £900m.

And internet banking customer numbers were up from 599,000 to 659,000 in the year to March.

The results showed Clydesdale and Yorkshire had 294 branches in mid-March, down by 28 on the same point in 2014.

A further 19 branches are due to close, including Glasgow Springburn, Denny, Dollar, Forres, Helensburgh, Kilwinning, one in Dundee and one in Hamilton.

Yorkshire Bank branches being closed include one in Blackpool, Driffield, Stalybridge, Featherstone, Kettering, Elland, Barnsley, Altrincham and one in Leeds.

'New opportunity'

Meanwhile, NAB announced it is raising A$5.5bn (£2.9bn) through a rights issue.

Debbie Crosbie, the acting chief executive of Clydesdale, said the demerger announcement "marks the beginning of an exciting new opportunity for Clydesdale and Yorkshire Banks.

"Our performance is improving and we're providing real customer choice in the UK, which is driving encouraging growth across our target retail and SME [small and medium-sized enterprise] markets."

She added: "We believe the foundations of a strong standalone future have been laid in the progress made restructuring and refocusing our business, and this is clear in our half-year results."

The Clydesdale Bank was founded in Glasgow in 1838. It has been owned by NAB since 1987, having previously been owned by Midland Bank.

Yorkshire Bank was founded in 1859.