MortgagesMay 7 2015

Clydesdale legacy conduct may cost parent £1.7bn

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Clydesdale legacy conduct may cost parent £1.7bn

National Australia Bank has confirmed its plans to offload its Clydesdale and Yorkshire Bank subsidiaries, but has revealed it has been instructed by the Prudential Regulation Authority to set aside a further £1.7bn for potential redress ahead of any de-merger.

NAB’s half year results for its UK banking operations, published today (7 May), confirmed its intention to pursue a listing of Clydesdale Bank and its subsidiaries. Clydesdale Bank plc operates the Clydesdale Bank and Yorkshire Bank brands.

The preferred public market exit option is a demerger of 70-80 per cent of NAB Europe and Clydesdale to NBA shareholders and a sale of shares in an IPO of the remaining balance of 20-30 per cent to institutional investors, targeting an exit by end of this year.

NAB believes a demerger would accelerate a “full exit, delivering greater certainty than a full IPO alternative and NAB shareholders can retain potential upside”.

It adds: “This is a substantial and complex undertaking, subject to risk and addressing a number of issues of which the most substantive is conduct mitigation.”

However, it reveals the PRA has ordered NAB to set aside a further £1.7bn against potential losses related to legacy conduct costs, centred on payment protection insurance, interest rate swap and business loan conplaints and alleged mis-selling not covered by existing provisions.

This comes just a month after Clydesdale was fined £20.7m over payment protection insurance failings. It has also previously been the subject of a highly critical report published by the Treasury Select Committee into allegations of mis-selling swaps and loans.

The results added there is no certainty that a transaction will occur and “discussions with regulators and other key stakeholders, while significant to date, remain ongoing.”

Meanwhile, the UK banking results for the six months to 31 March 2015 show pre-tax cash earnings of £118m, up 33 per cent on the same period a year ago.

Debbie Crosbie, acting chief executive, said: “Today’s 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 markets.

“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.

“There’s more work to be done as we move the business forward and build a better bank for our customers. Oversight and governance of historical PPI complaints have been completely overhauled and comprehensive programmes are underway to put this right to ensure we are doing the right thing by our customers.

“The strong start we’ve made since the beginning of 2015 means we’re well placed to build on our organic growth plans.”

emma.hughes@ft.com, donia.o’loughlin@ft.com