Sabadell's interest in Clydesdale is unlikely to derail IPO
National Australia Bank's (NAB) intention to sell off as much as 80% of the UK banks under Clydesdale to its shareholders, with the remainder to be sold via an IPO, is to go ahead, despite &nbsp;reports of interest from Spain's Banco&nbsp;Sabadell. "It would be great if someone offered us a great price for the asset but that hasn't happened and the focus is on getting the float done", said a source from NAB.
Nevertheless, Thorburn noted at NAB's third-quarter update in August that it was all systems go for the float of a UK business that has dragged down the group's earnings and share price for years.

Demerger and listing progressing

"Substantial progress has been made on our intention to pursue a demerger and initial public offering of Clydesdale Bank over the last three months and we will provide the market with a detailed update of the proposed transaction at our 2015 full-year results", he said.

The full-year results will be announced next month. In the meantime there has been growing speculation in the UK that a float may not be the only option NAB is contemplating.

The mis-selling of financial products at Clydesdale creates problems for NAB's attempts to float the business. Bloomberg

According to reports, Spanish bank Sabadell is considering a bid for a second-tier UK bank with Clydesdale said to be on its shopping list. Sabadell is one of the few European banks to emerge from the global financial crisis in reasonable shape and already has a presence in the UK, having bought TSB Banking Group for £1.7 billion earlier this year.

Advertisement

TSB happens to be one of the reasons NAB decided to push ahead with an IPO of its British businesses. It was spun off by Lloyds in June 2014 and enjoyed a solid sharemarket debut, indicating there was sufficient investor demand for so-called challenger banks. The fact it was then taken over by a foreign predator has also cheered NAB executives and their advisers. Indeed, NAB's new Clydesdale chief executive, David Duffy, made a point of telling potential investors in July that Clydesdale was the country's biggest mid-sized bank with £28 billion of loans compared with TSB's £22 billion.

It would appear, however, that the speculation is off the mark. Sources close to NAB said the only deal being worked on at the moment was the float, which they hope to have completed by January. "It would be great if someone offered us a great price for the asset but that hasn't happened and the focus is on getting the float done," the source said.

Sale faster than float but unlikely

A sale of Clydesdale would represent a far cleaner way to exit the UK for NAB. But the problem is the bank tried before - with a Spanish bank no less - and was made an offer it found easy to refuse.

Despite the "we are not going to rush" rhetoric under previous CEO Clyne in the post-financial crisis years, NAB and its then-advisers, Goldman Sachs, approached every man and his dog about a potential deal.

It is understood the closest NAB got was a sale to Spain's Santander in early 2013 but disagreements over value as well as the tough UK regulatory environment – a factor often underestimated in Australia – scuppered any chance of a transaction.

The market has improved since then, to be sure. And Clydesdale is a far cleaner business that has stripped out many of its bad loans (particularly in commercial real estate) and expanded its retail mortgage business.

But the fact remains TSB had a stronger balance sheet and a better mix of customers. That's the reason it was swallowed up first and even then, it spent about a year as a listed company. A UK float remains the main game for NAB.



