Scots jobs on line if Abbey joins NAB
By ian Fraser
Published: Sunday Herald
Date: July 14th, 2002
SCOTLAND will feel the brunt of amalgamations and job cuts if National Australia Bank’s £15 billion takeover approach to Abbey National bears fruit, according to banking analysts.
The NAB and Abbey talks, first revealed by the Sunday Herald on June 16, have been going on “informally” for several weeks, according to City sources, with NAB advised by Goldman Sachs and Abbey advised by UBS Warburg and Lehman Brothers.
Abbey National is parent to three life companies in Scotland — Abbey Life, Scottish Mutual and Scottish Provident — but Alastair Hunter, analyst at Australian stockbrokers JB Were believes the brands would be “rationalised” in the event of an NAB/Abbey merger.
“NAB would accelerate the rationalisation that is already underway at Abbey Life, Scottish Mutual and Scottish Provident,” said Hunter. “What’s the logic in having three cost structures and three brands?”
All three businesses, which employ a total of 4,000 staff, are based in Scotland. While Scottish Mutual and Abbey Life are based in Glasgow, Scottish Provident, the protection industry pioneer acquired by Abbey for £1.8bn in 2001, is based in Edinburgh.
Hunter also pointed to synergies with NAB’s Australian life assurance and fund management business, MLC. One big opportunity for NAB would be to “plug” the MLC master-trust platform into Abbey’s distribution network.
One key question is who would lead the new entity. An obvious NAB candidate has not emerged but Andrew Pople, of Abbey National, who took over as managing director of retail banking, is being groomed as a successor to Ian Harley, who is expected to step down after a deal is completed.
The Abbey National chairman, Lord Burns, has favoured an internal appointment to take over and Pople has recently raised his profile around the group and in the City. The former finance director, Gareth Jones, who was paid off six months ago before a financial black hole was revealed, has publicly blamed Harley for making high-risk investments that have exposed the bank.
Abbey National, with a market value of £11bn has 15 million customers and 714 branches, mainly in southern England.
Hunter said: “NAB has just launched a technologically advanced fund of fund managers that permits investors to choose the best managers for each asset class. This could be very successfully leveraged through Abbey’s life companies.”
NAB had already committed to spending £33 million on expanding its wealth management arm in the UK and £35m to upgrade the IT infrastructure.
“Wealth management is probably the one global business that is earmarked for growth,” Steve Targett, head of NAB’s UK business, said earlier this year.
But that could act as a brake on growth at Abbey National Asset Managers, the Glasgow-based fund management arm which has £30bn under management, and its Talorcan hedge fund business.
Jon Kirk, banks analyst at Fox-Pitt, Kelton, said: “I hope that NAB does retain the Abbey life businesses [in the event of its bid being successful]. We’ve been extolling the virtues of bancassurance and believe that concerns about future capital injections are hugely overdone.”
Kirk added: “Injecting Clydesdale and Yorkshire into Abbey would make sense from the point of view of simple cost savings.”
The brands, then, could be expected to live on, at least for the time being.
Fox-Pitt estimates savings would amount to just (pounds) 200m, compared with Abbey’s pre-tax profits last year of almost £2bn. There would be few, if any, revenue gains.
Headquartered in Melbourne, NAB has been attracted to Abbey National because of its low share price and through a desire to strengthen its UK business, currently limited to Clydesdale in Scotland, Yorkshire Bank as well as a couple of banks in Ireland.
Both NAB and Abbey National refused to comment on the planned merger, despite widespread reports of their informal discussions. But JP Morgan analyst Brian Johnson believes NAB would be better off divesting its four banking operations in the UK and negotiating a distribution deal with a large British bank to expand MLC.
“A major UK expansion would likely use up NAB’s existing surplus capital distract management from realising the full benefits of its Positioning For Growth initiative, as well as significantly increasing medium-term strategic execution risk,” said Johnson.
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