NAB spinoff Clydesdale Bank eyes RBS subsidiary

Clydesdale Bank is nearing its first acquisition since being spun off by National Australia Bank.

Clydesdale Bank’s David Duffy is interested in acquisitions.

Clydesdale Bank is nearing its first acquisition since being spun off by National Australia Bank, confirming interest in buying The Royal Bank of Scotland’s subsidiary Williams and Glyn.

After reports in Britain of a bid being tabled, the dual-listed Clydesdale confirmed to the Australian Securities Exchange that discussions with RBS were under way.

“The board can confirm that the company has engaged in discussions with RBS and has made a preliminary, non-binding proposal to RBS in relation to its Williams and Glyn operations,” Clydesdale said.

“This engagement is ongoing and there can be no certainty that any transaction will occur, nor as to the terms on which any transaction might be concluded.”

While Clydesdale didn’t reveal the bid price, the bank may secure the deal at below book value after reports claimed RBS was likely to sell Williams and Glyn at less than its £1.3 billion ($2bn) valuation after an extended and complicated process.

RBS, which is run by former Commonwealth Bank senior executive Ross McEwan, committed to dispose of Williams and Glyn by the end of next year as part of an agreement when the group was bailed out by the government in the financial crisis.

After missing previous deadlines to offload the operations, RBS in April warned it may miss next year’s separation goal due to the difficulties in creating a new “cloned banking platform”.

Although RBS said “alternative means to achieve separation and divestment” were being explored.

Clydesdale, a “challenger” bank to the major lenders in Britain, was shed by NAB earlier this year after weighing on the group’s profitability as part of chief Andrew Thorburn’s plan to focus on core operations in Australia and New Zealand.

But since being cut free, investors warmed to Clydesdale’s valuation, potential capital releases, cost-out strategy and consolidation opportunities. Macquarie analyst Victor German last month labelled Clydesdale “one of the best restructuring/transformation opportunities” in the European banking market.

Clydesdale chief David Duffy last year expressed interest in doing acquisitions after delivering on targets and earning the “right” from investors to “have a conversation later about consolidation”.

Many Australians own shares in Clydesdale after NAB demerged 75 per cent to shareholders. Clydesdale’s primary listing is in London and it also trades on the ASX via CHESS Depository Interests.

Clydesdale’s ASX securities yesterday eased 3 per cent to $4.28 in a weaker broader market.

Clydesdale last month rejigged a handful of targets, including delivering a cost-to-income ratio of 55-58 per cent by 2019, better than the previous forecast of less than 60 per cent by 2020.

The bank also pledged to deliver a double-digit return on tangible equity by the same time, better than the previous 2020 target, while annual loan growth in the “mid-single” digits was likely.

But Macquarie’s Mr German claimed Clydesdale’s better medium-term earnings targets were offset by the costs to achieve them, including £200m pre-tax of “highly material” below-the-line restructuring charges by 2018.