National Australia Bank (NAB) is refusing to confirm the price of a portfolio of non-performing UK loans — last valued at £625m — it is selling to an affiliate of private equity firm Cerberus Global Investors, but admits it will “make a small gain” on the deal.
The bank, which owns the Clydesdale and Yorkshire Banks in Britain, says shedding the majority of its UK real estate debt in what it described as a “substantial de-risking of the portfolio” will also boost its group funds by around £127m and cut NAB’s gross UK commercial real estate loans balance by a fifth to £2.38bn.
The portfolio is part of the loan book of Clydesdale Bank, which NAB acquired in the late-1980s, and which has consistently underperformed,largely due to its exposure to commercial property outside London. All the loans on offer are either in default, passed maturity or nearing maturity.
First-round bids for “Project Chestnut” started in June and attracted immediate interest from a number of hedge funds. The sale is being handled by Morgan Stanley and the loans being sold off in tranches.
Like its Australasian rivals — the Commonwealth Bank of Australia, Australia and New Zealand Banking Group and Westpac Banking Corp — NAB looks set to notch up its sixth year of record profits. Those profits could be even higher, analysts claim, if it were not for problems with its UK loans and business interests.
“We’ve progressively reduced our exposure to UK commercial property loans through organic run-off,” explained incoming group chief executive officer Andrew Thorburn. “This sale represents a substantial de-risking of the non-performing portion of the NAB UK commercial real estate portfolio.
“As we signalled at the interim results in May, we continue to look at opportunities to optimise return on equity by accelerating the sale of non-core assets.
“While pleased with the acceleration of the run-off in our UK portfolio our broader British operations still face some challenges, in particular in relation to conduct related costs,” Thorburn was referring primarily to problems at the Clydesdale Bank which is still compensating customers after the 2009 discovery it had miscalculated repayments on 42,500 mortgages.
Analyst T. S. Lim, of brokers Bell Potter, said the deal showed NAB’s trouble hit commercial property loans were being dealt with faster than expected. “It’s a good sign,” he added. “They are actually moving quite fast, but the bank still faces a bigger task in extricating itself from the British economy, given its ownership of the Clydesdale and Yorkshire banks.”
Limis also convinced that NAB may also be lining up to sell both banks which, he says, could be floated as soon as early next year.
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