NAB's UK troubles ease

Could the stars finally align for Cameron Clyne?

The most notable development in this morning’s third-quarter update from the National Australia Bank – which delivered a $1.5 billion cash profit that was  7% higher than the same period last year – was an improvement in its UK division, the operation that has been an anchor around the bank’s bottom line.

A reversal in impairment charges at its UK businesses, the Yorkshire Bank and Clydesdale Bank, led to a 10% drop in bad debts to $489 million.

At various times during his tenure at NAB, Clyne has pondered offloading the troublesome divisions or taking advantage of weak conditions and low prices to bulk up. Having done neither smacked of indecision, a perception that perhaps was unfair.

Selling into a fire sale would not have delivered value to NAB shareholders and the risk of torching more value through a merger with another troubled UK bank would have been a step too far for NAB’s long suffering shareholders.

With Europe emerging from recession and the projected turnaround in the UK economy, the value of the regional banks will lift along with their earnings, delivering growth opportunities to the bank that are unavailable to its bigger rivals Westpac and CBA (see Five reasons to hang onto the banks).

Still, the UK operations have a long way to go. The commercial real estate book continues to be in run off, down a further 21% to 4.4 billion pounds.

But expenses “largely related to further provisions raised for conduct and redress matters” increased and NAB warned of uncertainty around these issues.