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NAB required to provide up to £1.7bn of capital support as part of Clydesdale spin-off

NAB required to provide up to £1.7bn of capital support as part of Clydesdale spin-off

Clydesdale Bank, the lender that claims it won't horse around with your money, is to be demerged from National Australia Bank (ASX:NAB).

The banking group, which includes the Yorskhire Bank, will have its shares listed in London, unless a trade sale is agreed.

Existing National Australia Bank (NAB) shareholders will hold around 70% to 80% of the existing share capital, with the rest offered to institutional shareholders sometime by the end of this year, subject to market conditions.

To make it easier for existing NAB shareholders to trade Clydesdale shares when they are listed, a CHESS depositary interest (CDI) listing will be sought on the Australian Securities Exchange.

NAB signalled its intention to exit the UK banking business in October 2014 and, for once, the UK banking levy was not cited as a reason; NAB said it wants to focus on its Australian and New Zealand businesses.

“Following a period of successful restructuring, the UK Banking business is now in a position to be demerged to shareholders and listed as a standalone retail and business bank with a strong franchise across its core regional UK markets, a strong balance sheet and capital position, a robust business plan and an experienced management team,” NAB said in a stock market statement. 

Like most British banks, Clydesdale may potentially have to pay out shed-loads of money for what NAB calls “legacy conduct costs” - payment protection insurance mis-selling and the like – and in order for the spin-off to go through the UK Prudential Regulation Authority (PRA) has advised NAB it will be required to provide up to £1.7bn of capital support to the new listed entity.

“While this figure is substantially in excess of NAB's own stress test scenario, we believe that the disadvantage of the expected capital deduction is outweighed by the benefits of separating the business,” NAB said. 

“To the extent actual losses are ultimately lower than the £1.7 billion, this is expected to result in a commensurate CET1 benefit for NAB; however, the form of support, duration and final regulatory capital treatment of the £1.7 billion remains subject to on-going regulatory discussion.”

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March 12 2009
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