NAB May Sell U.K. Unit on Economic Recovery, Macquarie Says

Jan 08, 2014 7:59 pm ET

(Updates with NAB spokeswoman comment in fifth paragraph.)

Jan. 9 (Bloomberg) -- National Australia Bank Ltd., the country’s largest lender by assets, may this year take advantage of the U.K. economic recovery to sell its unit there, Macquarie Group Ltd. analysts said.

The business stands to gain from improved credit growth and reduced bad debts on commercial real estate loans, analysts led by Michael Wiblin said in a research note. The unit could claw back some of the provisions for impairments on the property assets, potentially boosting its earnings by 1 percent to 4 percent, they said.

Chief Executive Officer Cameron Clyne is shrinking the lender’s U.K. business, where mounting bad debts triggered a full-year profit drop in 2012, the first decrease since 2009. He’s instead increasing the focus on mortgages in Australia, where the bank’s market share of home loans climbed 2.5 percentage points in the four years to 2013.

“NAB remains committed to its plan to sell the U.K. franchise, but not at any price,” analysts said in the note. “Given an improving U.K. macro, it may well be that it can get a better price this year.”

Meaghan Telford, a Melbourne-based spokeswoman for NAB, said the bank doesn’t comment on market speculation.

U.K. Chancellor of the Exchequer George Osborne last month raised the forecast for economic growth in 2014 to 2.4 percent from 1.8 percent and said the country was growing faster than any major economy. Home loan approvals climbed 33 percent in November versus a year earlier to the highest level in almost six years, data from the Bank of England show.

Discounts Narrow

NAB separated the commercial real estate portfolio from its U.K. unit in October 2012. Discounts on recent sales of impaired loans were at 38 percent to low single digits, compared with 50 percent a year ago, the analysts said.

While disposal of the U.K. business “has not proved possible to date,” a restructuring in 2012 is beginning to show results, NAB’s chairman Michael Chaney said at the annual shareholders meeting Dec. 19.

NAB moved 5.6 billion pounds ($9.2 billion) of commercial real estate assets onto its own balance sheet in 2012 and said in March that the remaining U.K. operations had become profitable. The value of the real estate portfolio was reduced to 4 billion pounds as of Sept. 30.

NAB is expected to report high single-digit earnings growth in the year to September 2014, driven by lower impairments charges and improved business credit demand, Macquarie said. The bank maintained its “outperform” rating and has a 12-month price target of A$38.61.

--Editors: Chris Bourke, Malcolm Scott