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Santander has eye on ailing NAB arm

22 Jan 2013 THE AGE - PHILIP WEN


REPORTS that National Australia Bank may have the chance to sell its loss-making British operations have been welcomed by investors, even though a significant loss would be likely on any deal.

Shares in NAB jumped as much as 2 per cent on Monday amid reports Spanish banking group Santander is contemplating a £2 billion ($3 billion) bid for NAB's underperforming Clydesdale and Yorkshire banks. A NAB spokesman declined to comment.

NAB shares closed 50¢, or 1.9 per cent, higher at $26.85, outperforming other bank stocks, which were largely flat in a quiet trading day.

Industry analysts viewed the market speculation with scepticism, but said almost any deal would be positive for NAB, as long as it could be rid of its British operations.

"If they can get out of it for the number that was talked about in the UK press, that would be a fantastic outcome," BBY analyst Brett Le Mesurier said.

"The business continues to lose money and they've got a lot of capital tied up not adding to the value to the bank."

London's Sunday Times reported that Santander wanted to bolster its British business before a planned listing in London, estimated at about £10 billion.

Ana Patricia Botin, the chief executive of Santander UK, declined to comment on the bank's rumoured interest in Clydesdale and Yorkshire, but did say the bank was focused on organic growth.

Mr Le Mesurier said NAB should consider any reasonable offer, given the British arm lost about £500 million last year.

"If they can even get £1 billion for it, it'd be a good outcome," he said.

Nomura's Victor German said a £2 billion price would imply a valuation equivalent to 70 per cent of its book value, releasing excess capital and boosting the group's earnings per share.

The underperforming business has persistently weighed on the group's return on capital and share price since the onset of the global financial crisis.

The bank's operations are centred on the regions hit hardest by the crisis, including the Midlands and northern Britain.

NAB's net profit slumped by $1 billion to $4.1 billion last year, mostly due to a wave of bad debts from its British business.

The NAB chairman, Michael Chaney, said last month that the bank had tried to sell the business, but was struggling to obtain an acceptable price due to weak economic conditions in Europe.

But analysts at Macquarie Private Wealth noted that the troubled northern regions of Britain had begun to show signs of economic recovery. Property prices were being revised upwards and business confidence was at post-financial crisis highs.

"These little rays of sunshine could see NAB's UK banking earnings return to positive territory after two consecutive halves of negative earnings," the analysts said in a note to clients on Monday.