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National Australia Shares Jump on Plan to Sell Most Bank Branches in U.K.

National Australia Bank Ltd. (NAB), the nation’s biggest lender to companies, rose the most in almost a month in Sydney trading on speculation that a potential sale of its U.K. branches will boost return on equity.

National Australia, based in Melbourne, gained 3.6 percent, the biggest increase since Aug. 10, to A$22.94 in Sydney while the benchmark S&P/ASX 200 index advanced 2.7 percent. The stock is the best performer among the nation’s so-called four-pillar lenders this year.

NBNK Investments Plc (NBNK), the investment company founded by Lloyd’s of London Chairman Peter Levene, is in talks to acquire NAB’s Clydesdale and Yorkshire units, a person familiar with the negotiations said yesterday. A sale would raise National Australia’s return on equity to 16.7 percent from 15.5 percent, Citigroup Inc. analysts led by Craig Williams estimated.

Exiting the U.K. “would deliver a nice kicker for NAB,” Melbourne-based Williams said in a note to investors. “NAB management has classified its U.K. business as a ‘financial’ asset rather than a ‘strategic’ asset. It regards the U.K. banking market as clearly less attractive than its home markets.”

National Australia has more than 300 retail branches in the U.K. with about 2.7 million customers at the Clydesdale and Yorkshire banks, according to its website. The lender said last month when it reported earnings for the quarter ended June 30 that its U.K. banking businesses “coped well with the slow credit environment.”

‘More Competition’

National Australia yesterday referred to comments previously made by Chief Executive Officer Cameron Clyne that the lender would consider alternatives to expanding its British operations.

“There is a lot of debate in the U.K. market at present about the future shape of the U.K. banking industry with a common theme being that the U.K. market would benefit from more traditional banks and more competition,” Clyne has said. “Our number one priority is and has always been to grow the business organically but in this climate it is also only natural that we would look at other options available to us.”

The analysis on return on equity, a measure of how well reinvested earnings generate extra profit, assumes the sale would be at book value, which was estimated at about 2.76 billion pounds ($4.4 billion) for the first half of 2011, Citigroup said. The proceeds may be returned to shareholders through a capital return or special dividend, Williams wrote.

That “would further support our buy recommendation,” Williams said.

Buying Market Share

London-based NBNK wants to acquire the Clydesdale and Yorkshire banks as a first step to bidding for more than 630 branches from Lloyds Banking Group Plc (LLOY), said the person, who declined to be identified because the discussions are private. The talks are in an early stage and may not succeed, the person said.

Shares of NBNK, which issued a statement yesterday that it was in talks for an acquisition, were suspended from trading until it publishes documents related to the takeover or the negotiations are concluded. The investment company didn’t name the seller, and a spokesman declined to comment beyond the statement.

NBNK raised 50 million pounds in August 2010 to make acquisitions and form a “substantial” consumer bank with a 4 to 6 percent share of the British banking market.

To contact the reporter on this story: Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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