LONDON: The shock bank tax announced in the UK budget this week will complicate National Australia Bank’s sale of Clydesdale Bank, says Commonwealth Bank of Australia analyst Victor German, who has sliced his valuation of NAB’s difficult UK business by $425 million.
UK chancellor George Osborne surprised the market when he announced an 8 per cent tax on bank profits in the UK budget on Wednesday, which also removed a controversial bank levy that HSBC and Standard Chartered had argued could force them out of the UK.
Shares in smaller UK banks (where they are known as “challenger banks”) fell as much as 15 per cent after the announcement on Wednesday.
Proposed changes announced in the UK’s 2015 budget appear to be detrimental to NAB’s aspirations in listing its UK assets,” Mr German said.
NAB is planning on selling as much as 80 per cent of Clydesdale Bank later this year by demerging it to NAB shareholders and conducting an initial public offering.
CBA said the tax would reduce Clydesdale’s full-year 2016 pro forma earnings by about 10 per cent and its full-year 2020 forecast earnings by about 8 per cent. This reduced Clydesdale’s valuation by about $425 million.
There was “a further downside risk should these changes result in a permanent de‑rating of the smaller peer banks in the UK,” Mr German said. “Moreover, all other things being equal, we believe NAB may need to sell a larger percentage of shares to meet its capital targets (that is, be at the upper end of the 20‑30 per cent range).”
On Tuesday, NAB released broad-brush details about the outlook and strategy for Clydesdale as an independent entity and new Clydesdale chief executive David Duffy presented to investors in the UK. NAB has overhauled Clydesdale’s management and cut costs at the bank after it was hit by a fallout from the UK’s grinding recession and costs from a mis-selling scandal that has dogged the British banking sector and complicated the exit. Now the bank tax is the latest headache.
NAB CEO Andrew Thorburn has made it a priority to focus on Australian and New Zealand operations, as outlined in a recent profile in The Australian Financial Review’s BOSS Magazine.
