National Australia Sees Accounting Loss From U.K. Unit Exit

  • Loss may range from A$1.71 billion to A$4.67 billion
  • No impact on capital levels, cash earnings, dividend capacity

National Australia Bank Ltd. said it expects a “significant” accounting loss from the separation and initial public offering of its U.K. unit.

The lender, which plans to spin off CYBG Plc by February next year, said the loss could range from A$1.71 billion ($1.24 billion) to as much as A$4.67 billion. It won’t impact cash earnings, capital levels or the bank’s capacity to pay dividends, National Australia said in a presentation Tuesday.

The U.K. exit is the final piece in Chief Executive Officer Andrew Thorburn’s strategy to ditch underperforming businesses and focus on Australia and New Zealand mortgages and corporate loans. National Australia is seeking shareholder approval for the separation Jan. 27.

“After more than a decade of worries for National Australia investors, the accounting loss is the final disappointment,” David Ellis, a Sydney-based banking analyst at Morningstar Inc., said by phone. “Some loss was expected. Still, exiting the U.K. is the right thing for shareholders in the long term.”

If the separation is managed at book value, the accounting loss would be A$1.71 billion, National Australia said. The number would rise to A$3.19 billion at 0.75 times the carrying value and A$4.67 billion at half the book value, it said.

National Australia said its main financial metrics will improve after the exit. Its return on equity, a measure of how efficiently it uses shareholder funds, for the year ended Sept. 30 would have risen to 14.6 percent from the reported 12 percent, the lender said. Its cost to income ratio would have shrunk to 41.1 percent from 50.8 percent, it said.

The bank plans to give its shareholders one security in its U.K. unit for every four National Australia shares they hold, it said Monday. CYBG shares will be listed on the London Stock Exchange and the CHESS depositary interests on the Australian Securities Exchange, the lender said.

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