14 February 2012
The allegations of “a black hole”, “reckless commercial property lending in 2005-07”, “dodgy accounting” etc at National Australia Bank’s UK subsidiaries Clydesdale Bank and Yorkshire Bank (which I’ve now heard from at least four reliable and independent senior banking sources) just won’t seem to go away.
I touched on this theme in an article published in the Sunday Herald three days ago (“Who’s to blame for Clydesdale troubles“) which explored why Clydesdale Bank has become something of an albatross for National Australia Bank’s chief executive Cameron Clyne, and why it’s extremely unlikely to fetch anywhere near the A$2.5 billion it has been claimed to be worth.
Perhaps the strongest quote in that piece came from an ex-insider in Clydesdale’s commercial lending division, who said: “Some crazy stuff was going on, like financing a block of flats in central Glasgow at 105% loan-to-value. Some of the guys in Yorkshire Bank just went daft for property. One lent £15m to build a 20-storey block of flats in Manchester, but the developer ran out of money after building just four floors. That was held up internally as an example of what not to do.
“In Clydesdale Bank it was not unknown for people to lend seven figures sums without any credit application and with no security instructed. There were also examples of chartered surveyors providing inflated valuations. A lot of the dodgy lending happened because executives were so desperate for bonuses.”
Inadequate systems are also said to have been partially to blame. The ex-insider said the Glasgow-based bank “discovered” that 90% of its non-retail lending was to commercial property in March 2010, after it properly computerising its systems. Before that individual Clydesdale bankers had recorded their lending activities on Excel spreadsheets, said the ex-insider. “To clean up the mess they’re tightening the screws on borrowers, hiking up the arrangement fees causing some real pain, and they’ll also be trying to get the dodgiest loans off their books. If they hadn’t had NAB to bail them out over the past four years, they’d probably be bust by now.”
Today, I chanced upon a document (“Illusion and Reality at the National Australia Bank Part II“) which appears to corroborate at least some of these claims. Inter alia, the document highlights how Clydesdale Bank (which includes Yorkshire Bank) treated financial controller Amy Davies who sought to alert her superiors to accounting irregularities at National Australia Bank’s UK arm.
In Illusion and Reality, Evan Jones, of the department of political economy at the University of Sydney, writes: “Amy Davies was hired by the NAB’s UK subsidiaries (Clydesdale & Yorkshire Banks) in September 2005 to handle post-Enron governance issues. In May 2006, she claimed to have discovered discrepancies totalling £128 million in ledger entries recording transfers between the two banks. Initially promised full support from Melbourne Head Office, Davies was moved sideways in June and sacked in July, for ‘behavioural reasons’ such as lacking ‘people skills’…
Davies was an ex-employee of PWC who was hired by National Australia Group Europe (NAGE is the acronym the Melbourne-based bank gives to its Clydesdale Bank and Yorkshire Bank arms) on a salary some £67,000. She claimed unfair dismissal under the Public Interest Disclosure Act, telling the tribunal that the Aussie-owned bank had persuaded her to leave her position at PWC and that she was fired after she sought to alert management to inconsistencies in the bank’s accounts.
Davies told the Glasgow tribunal: ‘I have had my reputation ruined. It wasn’t just losing my job. National then set on a path which ruined my reputation. This is not all about money. My name has been damaged significantly so I can’t get the same opportunities I had before. I haven’t done anything wrong. I did my job and I did it well. If you have behavioural issues you are not awarded a pay rise.’
Davies’s claim for compensation was rejected by the Glasgow tribunal in September 2007. According to The Scotsman, she was seeking an award of more than £700,000 for lost career opportunities and damages against NAGE. However she was only awarded £2,961 holiday pay, which the bank conceded. The bank claimed that an independent investigation found no “large hole in the [Clydesdale and Yorkshire] accounts” but admitted that there had been accounting errors.
My view? There’s no smoke without fire (especially when at least four senior banking sources, including John Morrison, a director of specialist Luxembourg-based consultancy Asymptotix, have been telling me about the billowing stuff for months, if not years).
To read more on why Clydesdale Bank’s claims to be a prudent lender are ringing increasingly hollow, see the unedited version of my Sunday Herald article, published February 12th, 2012.