Clydesdale takeover could see ‘lots of Scots thrown out of their homes’, says expert

By Ian Fraser

Published: Sunday Herald

Date: September 11th, 2011


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 sales talks, 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 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 seeking to acquire NAB’s Clydesdale and Yorkshire banks in conjunction with the 627 branch assets of Lloyds Banking Group for sale under the “Project Verde” offloading ordered by Lloyds chief executive Antonio Horta-Osorio.

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 the 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won’t be nearly as bad as what’s happening in Ireland – and a lot of Scottish business are going to find credit lines withdrawn, with significant numbers forced into administration.”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

Short URL: https://www.ianfraser.org/?p=4701

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2 Comments for “Clydesdale takeover could see ‘lots of Scots thrown out of their homes’, says expert”

  1. What I really meant to say about Clydesdale and NBNK

    The Sunday Herald newspaper of Glasgow featured an article yesterday about the reported possible acquisition of Clydesdale Bank by NBNK Investments plc. The article written by Ian Fraser, a friend of mine; relied upon some quotations from me; which could be interpreted as ‘over the top’; although given they were made on a Friday afternoon in the current fraught context of European financial services and capital markets; one could be forgiven for this, I think. I don’t believe that a second round of clearances are about to happen (or more accurately a third round if you are a serious Scottish history wonk)! The analogy which places the board and management of NBNK Investments plc in the role of the highland landlords, is not the way I see it.

    Asymptotix is fortunate being based in Luxembourg; a concentrated banking and asset management centre a few hundred kilometres south of the Intersection of Europe; we directly engage with the economies of not only Scotland but the Netherlands, Belgium, Switzerland, Ireland, Sweden; it gives us a width of view a context from which to abstract common patterns. The macroeconomic context of Scotland is no different from that of Ireland or Belgium or the Netherlands! Each of these is what economists term a “small open economy”. Indeed until recently Scotland had alot in common with Switzerland in having an international banking and financial services sector massively disproportionate to its population (that was because people trusted our large tight fists!).

    But since the demise of HBOS and RBOS (as was) that is all gone. If you study the technical literature in economics on the Small Open Economies; the common thread is that Economic Governance in these countries is all but impossible since they are effectively blown around like an autumn leaf on the macroeconomic winds which develop on their larger neighbours. The sense of Ian Fraser’s article would pass a truth test I think; that is important but the nuances are complex; on the face of it, the article may suggest that the board and executive of NBNK plc are the Big Bad Wolf in this third act of the Scottish banking play! This suggestion is not something I myself would want to make. Lets not loose perspective right now, the whole situation is counterfactual, hypeothetical; Clydesdale has not been acquired yet. I don’t think critically of NBNK, in fact I think they have an agile, fleet of foot; highly experienced management team with a board committed to Scotland and committed to learning all the lessons of the recent crisis they possibly can. But you cant fight the macroeconomic context, that is like trying to stop the rain or constrain the wind, it cant be done & as with any powerful force; you must not be in denial, you must face up to realities and understand the true nature of your environment; hope for the best sure but be prepared for the worst. The macroeconomic environment is collapsing around our heads & shoulders, that is the fact of it, Armageddon has come; in that context I am the only friend you have who will tell you, you have dandruff!

    I have been pointing to signs of Armageddon down the road for several years now (all you have to do is read the content on the Asymptotix website); like the preacher in the wilderness I have been questioned as to my sanity, although Hebridean I do not claim to be the Brahan Seer, however the logic is obvious, not only in Scotland but also in the Netherlands and Ireland, the problems are in the residential housing domain, credit supply generally and in the small to medium sized enterprises and the atomic causes of the problem is the width of the banking system balance sheets which mainly as a result of central government demand for capital are being constrained from growing by access to wholesale capital. This is what economist technicians call a failure of the transmission mechanism; it is occurring right now in Belgium, Holland, Spain, Greece; Scotland is not different, Scotland can be no different!

    These issues are nothing to do with NBNK itself nor its board nor its management; NBNK is a consolidation vehicle now, sucking up Clydesdale on its way to engaging with the big Black Horse. This kind of consolidation was inevitable as soon as HBOS effectively collapsed but more so, as soon as the downturn in the general macroeconomic context became so pronounced that it rattled the Governor of the European Central Bank into raging anger last week! Inevitably this process of consolidation will narrow or shrink the total balance sheet width available to Scottish borrowers both personal and SME (“small to medium sized enterprise”). The large corporates are going direct to the bond markets nowadays via the bulge brackets in London and New York. The point is that even just to stand still in credit supply; balance sheets need to be growing at least at the same pace as population in Scotland, that is the underlying Malthusian idea predicated on the need to have a roof over our head! But right now we can see balance sheet slimming. Thinning out of bank balance sheets across the world has been happening since the securitisation markets effectively ‘ceased to be’ which is what did for Northeren Rock. Sure you can argue new entrants will appear like a “pop-up” restaurant in Canary Wharf but the process its not as simple as the elegant Neo Classical theory of macroeconomics suggests and what happens in logical time in an instant in the theory book takes one helluva lot longer in real time (yours and my time) on the dear green streets of Glasgow.

    I am not so stupid (nor am I a Marxist, I had all that out in Ashton Lane) as to believe that Scotland can do without banks and that all bankers are thrawn cynical thieves to a man; in Scotland we had a big bunch of bad apples and a strong smattering of idiots in Scottish banking for a number of years and Ian Fraser has done a grand job in exposing and flushing them out but there is a process in place now to put that right of which NBNK are actually the spearhead. The board and management of NBNK live in the same world as you and me and are subject to the same inevitabilities the same dynamics of economics; they are not superheroes they cannot stop the tide rushing out, the tide of money rushing out of Scotland, its not their fault and we should not suggest that it is. As Ian argues the process of ‘extend and pretend’ where a bank having made a badly appraised loan is happy to accept interest payments without return on principle in these bad times is bad practice, it means that we cannot really ‘realise’ where we are. But that process is inherently temporary and dependent upon one expecting an economic upturn. Those smart guys at NBNK are just as aware as me that the Scottish economy as an aspect of the UK and then the European economy is being buffeted by the remains of a macroeconomic Hurricane Katia; asset appraisal is on a ‘bid basis’. You have a right to know too; all credit exposures, secured or unsecured are under revision by all variants of asset management today and a new entrant freshly capitalised and under supervisory scrutiny will be more sensitive to that than the legacy shamblers it is attempting to clear out in this textbook process of Schumpeterian “creative destruction”! Be careful out there, in my view Scotland needs what it is not going to get; three more NBNKs!!!!! Its the economy stupid, NBNK is not the Big Bad Wolf!

  2. […] bank ran by former Northern Rock chief executive Gary Hoffman. Ian Fraser, in the Sunday Herald, has already detailed the risk of “triggering a rash of home repossessions and corporate bankruptcies across […]

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