February 14, 2013 11:08 pm

NAB assesses £5.3bn in property loans

National Australia Bank, the country’s fourth-largest bank by market value, has approached advisers to help determine the future of its troubled £5.3bn property loan book, paving the way for a potential sale.

NAB, owner of the Yorkshire and Clydesdale banks, has in the past few days invited a handful of investment banks and property advisory groups to assess the options for the loan book, according to people familiar with the process.

It is almost a year since NAB announced a total cessation of its lending operations in the UK property market and plans to move the £5.6bn of loans on to its balance sheet.

While a sale would be a U-turn for the bank, which said last year that it planned to hold the loans until maturity, it would be welcomed by shareholders.

They want Cameron Clyne, NAB chief executive, to pull out of the UK and focus on building its business in Australia and New Zealand.

Mr Clyne has been reluctant to sell, arguing that NAB would not get an acceptable price for the business because of the UK’s economic malaise.

“Like a lot of people with big real estate books, they have been surprised by the amount of liquidity coming into the market,” said one person with knowledge of the situation.

NAB said its focus remained on holding the loans to maturity. It added that it would “continue to consult with a variety of advisers on various aspects concerning the portfolio, for example market conditions”.

NAB’s decision to review the options for its UK loan book follows the move last month by Irish Bank Resolution Corporation, the company formerly called Anglo Irish Bank, to hire advisers to help with the wind-down of its €18bn of property loans.

Demand for real estate debt has risen steadily during the past six months, with a growing number of private equity funds raising capital to deploy into property.

NAB entered the UK in 1987 as part of a bold global expansion plan, but the business has struggled with bad debts and losses mounting after financial crisis.

This has weighed on NAB’s share price, which lagged behind domestic peers ANZ, Commonwealth Bank of Australia and Westpac business.

In an attempt to stem the growing tide of bad debts from the lossmaking UK business, NAB said in April that it would end commercial property lending in the UK and focus on retail banking and small business lending in Scotland and northern England.

As part of that plan, the bank also said that it would transfer £5.6bn of UK commercial property loans on to its balance sheet.

NAB said the restructuring would improve Clydesdale’s balance sheet structure and reduce its reliance on wholesale funding.

Last week, NAB revealed the UK loan book had been run down by a further £300m to £5.3bn, or £4.8bn net of provisions, while bad and doubtful debts in the run-off portfolio had fallen in the three months to the end of December.

Analysts estimate NAB has about A$700m of tier one equity capital tied up in the portfolio.

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