National Australia Bank chief Cameron Clyne has ruled out a “fire sale” of the bank’s loss making UK business, saying such a move would trigger deep shareholder losses.
Nor would there be any quick fixes to the UK, which remains NAB’s biggest challenge amid sluggish economic growth.
Problems in the UK underscored NAB’s disappointing 22 per cent drop in full year net profit to $4.08 billion, unveiled this morning.
Weighing down the result were hefty restructuring charges related to the UK business, which also reported a $213 million loss for the year.
The move comes as NAB takes a more downbeat view on the outlook of the Australian economy, suggesting the federal government’s growth forecasts of 3 per cent for each of the next two years is optimistic.
Just 2.5% growth this year
NAB is tipping the Australian economy will grow at 2.5 per cent this financial year and 2.8 per cent for financial 2014.
Still, it was the UK, namely NAB’s Clydesdale Bank which remains the “biggest challenge” for the lender, Mr Clyne said, adding he was disappointed with the UK loss.
“UK economic conditions have been particularly challenging, giving rise to increased loan losses – particularly in the commercial real estate portfolio,” he told an analyst briefing.
“The UK remains our biggest challenge, while data last week suggest the UK ended the recession during the September quarter, we remain very cautious on the outlook.”
He noted growth in the quarter had a one-off boost from the Olympics.
“The weak economic backdrop has contributed to further falls in property prices, particularly commercial real estate outside of London,” he said.
Fire sale ‘not in interest’ of investors
“Unfortunately there is no quick fix solution in the UK and believe me when I say we’ve been looking. The restructure we announced to the UK in April was the right response and will take time before that business will generate acceptable returns,” he said.
“A fire sale – even if possible would not be in the interest of our shareholders,” he said.
He pointed to the collapse earlier this month of efforts by Spanish bank Santander in its attempt to buy a branch network from Royal Bank of Scotland. This was a timely reminder that buyers of branch networks face significant technology and integration challenges, he said.
“This is why I have not pursued it.”
He said efforts to cut costs and exit commercial property lending in the UK has positioned Clydesdale to benefit from any economic recovery.
Clydesdale is “not immune from the economic environment, but is on a path to better returns with lower risk”.
‘Multiple speed’ economy
Meanwhile Mr Clyne said the Australian economy remained relatively strong but he said it was operating at “multiple speeds”.
Indeed, Australia was showing “significant divergence in conditions and very different levels of activity across sectors and states”.
NAB chief financial officer Mark Joiner said a $250 million top-up in provisioning across the bank’s balance sheet had been aimed at covering potential UK losses. It was to also to help protect from a slowing Australian economy.
“Our view of the Australian economy is weaker than federal government’s. We see issues on the Australian front,” Mr Joiner also told the briefing.