Nab's Uk Assets On Clyne's Agenda

The Age

Wednesday September 3, 2008

Eric Johnston Financial Services Editor

NATIONAL Australia Bank's incoming chief executive, Cameron Clyne, is expected to consider whether to offload its $7.5 billion British operations as part of a wider business review to improve shareholder returns.

With the British lending market slowing and mortgage losses rising, analysts said NAB's operation, which is centred on Glasgow-based Clydesdale Bank, was again becoming a headwind.

Brokerage Citigroup speculated that NAB could push ahead with a direct swap of its British banking assets for the fast-growing BankWest, which is owned by Britain's biggest mortgage lender, HBOS.

"The BankWest ... operation is lower-risk and will also beef up NAB's presence in the high-growth Western Australia market," Citigroup's Craig Williams said.

Britain-based investors have previously speculated that NAB and Commonwealth Bank have both approached HBOS about its Australian business.

Analysts speculate that any deal for the entire Australian arm of HBOS would be for more than $7.6 billion. A move on just the BankWest retail bank could be priced between $3.5 billion and $4 billion.

For its part HBOS, which recently raised the equivalent of $8 billion to improve the health of its balance sheet, has insisted it remains committed to its Australian operations as part of its international expansion.

Still, analysts note that its chief executive, Andy Hornby, appears to have softened his stance in the past two months.

CBA, which recently pulled out of acquiring ABN Amro's Australian business, is believed to be interested in the BankWest franchise and has appointed Credit Suisse as adviser.

But CBA chief executive Ralph Norris recently told a private investor briefing he was "more interested" in expanding in Queensland than Western Australia.

Citigroup's Mr Williams noted that NAB's British earnings are yet to be affected by the depressed housing market, but new chief executive Mr Clyne "may choose to move now while its earnings remain solid".

Return on equity for NAB's British operations last year came in at 12.6%, significantly lower than group returns of 18.5%. The British business generates about 15% of group earnings.

Mr Clyne, who heads NAB's New Zealand operations, will take charge on January 1.

Goldman Sachs JBWere is advising NAB as part of its continuing role as a house brokerage. But the investment bank is believed to have no specific mandate in relation to HBOS.

For years, NAB has argued that its British business provided diversification benefits outside Australia.

But Citigroup's Mr Williams believes this is no longer the case as the economic cycle between the two countries align.

Under current chief executive John Stewart, NAB has halved the size of its British operations, previously selling off two banks in Ireland.

KEY POINTS

- NAB's new chief executive may sell its British operations to improve shareholder returns.

- The bank may swap those operations for BankWest, owned by Britain's HBOS.