By Ian Fraser
Published: Sunday Herald
Date: 11 September 2011
NBNK REFUTES CLAIM AS SPECULATION OVER BANKING DEAL GROWS BY IAN FRASER
The possible sale of Clydesdale Bank to an untested London-based shell company, NBNK Investments, risks triggering a rash of home repossessions and corporate bankruptcies across Scotland, according to a leading European banking expert.
The comments provoked a vigorous rebuttal from NBNK’s chief executive, who, while declining to comment on any sale talk, asserted that NBNK’s ethical values meant it would not become a “mini-me” version of the big high-street banks to the detriment of borrowers.
John Morrison, a director in Luxembourg-based banking consultancy Asymptotix, told the Sunday Herald that, if Clydesdale were to be acquired by NBNK, which lacks the backing and resources of Clydesdale’s existing parent (the giant National Australia Bank), scrutiny of Clydesdale’s loan book would place the credit lines of some of its customers under threat.
Newcomer NBNK, whose board includes UK political heavyweights Lord Forsyth of Drumlean and Lord McFall, is eyeing a takeover of NAB’s Clydesdale and Yorkshire banks and of the 627 branch assets of Lloyds Banking Group for sale under the “Project Verde” offloading ordered by the European Union under state aid rules.
Morrison, a Glasgow University-trained banking risk expert who has held senior positions in several European banks, including HSBC and ABN Amro, said that if the deal went through, the Bank of England and Financial Services Authority might force Clydesdale and NAB Group sister institution Yorkshire Bank to take a more rigorous view of borrowers’ propensity to repay.
Earlier this year the FSA denied Clydesdale permission to share its parent’s “advanced internal ratings-based” status (AIRB), or discretion to value its own assets internally under the Basel II regulatory framework, seen by analysts as flagging concerns about its accounting procedures. Morrison said: “One consequence of an NBNK takeover of Clydesdale, if it happens, is that a lot of Scots are going to get thrown out of their houses – although that won’t be nearly as bad as what’s happening in Ireland – and a lot of Scottish business are going to find credit lines withdrawn, with significant numbers forced into administration.”
He added that the deal, if completed, would “call time” on Clydesdale’s existing lending culture: “I don’t think people in Scotland understand that there’s absolutely no way NBNK is going to be able to maintain the same relationship with SMEs and mid-sized corporates that Clydesdale has had.”
Gary Hoffman, chief executive of NBNK, who quit Northern Rock last year to help launch the bank, said that he could not comment on discussions with NAB or legacy issues relating to NAB. But he said: “The reason I went to Northern Rock in 2008 was to stabilise it. When I got there the bank was being pilloried by politicians for repossessing people’s homes and not showing much empathy. By the time I left, Northern Rock was recognised by consumer bodies as leading the way in helping customers who were in financial difficulties.
“Our prime target is the Lloyds branches, which includes the TSB branches in Scotland, so whatever happens NBNK expects to acquire a sizeable business in Scotland. The aim is to set up the consumer and small-business bank that everyone seems to want. There will be local decision-making, local relationship management and strong support of local businesses and communities. I am not here to create a mini-me of one of the big banks.”
Shares in the Melbourne-based NAB group climbed by 4% last Tuesday on news NBNK’s shares had been suspended because it was in talks with “an unnamed bank”, believed to be NAB.
NBNK’s motive in seeking a deal with Clydesdale and Yorkshire is to boost its credibility in the UK market. The Lloyds branches that must be sold to allow Lloyds to remain eligible for state aid under EU rules do not come with any core banking systems or back office. UK regulators are understood not to regard it as a credible buyer for these assets unless it has some banking capabilities.
The assets being sold by Lloyds include the former TSB branches in Scotland, Intelligent Finance and Cheltenham & Gloucester. If the shell company succeeds in combining these with the 340 Clydesdale and Yorkshire branches, the new entity would become one of Britain’s biggest retail banks.
If the talks proceed, UK regulators may require NAB to retain a significant stake in the merged business in order to prevent the need for massed significant numbers of corporate bankruptcies and home repossessions.
View article on Herald Scotland website