Despite announcing strong profits for 2011’s final quarter, the Clydesdale Bank’s owner has announced a review of its UK operations, blaming government austerity for future uncertainty.
National Australia Bank, which owns both the Clydesdale and Yorkshire Bank, announced the review with the quarterly results in Melbourne on Tuesday.
According to Cameron Clyne, NAB’s Group Chief Executive, “the UK economy is likely to experience a much longer period of subdued growth with the ongoing sovereign debt crisis in the Euro-zone and the continuing austerity program by the UK government.â€
Such strategic reviews can be precursors to sales, or to operational cutbacks, resulting in job losses.
The Clydesdale employs 4,200 people north of the border, with 152 Scottish branches and 15 ‘financial solutions centres’ in Scotland for business customers. Unlike its bigger Scottish banking sisters, it needed no government banking support during the banking crisis. Indeed, NAB is one of the few banks in the world to maintain its AA long-term credit rating, coming joint 12th in Global Finance Magazine’s 2011 World’s Safest banks, in front of HSBC, Nationwide and Barclays, the only other British banks to feature in the top 50.
Appearing before Holyrood’s Economy committee in December 2009, the Clydesdale’s then Chief Operating Officer (and now Chief Executive) David Thorburn told MSPs the Clydesdale’s “very traditional, conservative banking operation†meant it did not participate in aggressive lending nor had a plethora of absurd mortgage products, helping it avoid the government bail-outs resulting from the high risk speculation at Royal Bank of Scotland, HBOS and Northern Rock.
By 2010 the Clydesdale had significantly increased its business lending and pre-tax earnings, entered discussions (from which it later withdrew) to purchase over 600 Lloyds TSB branches and spent £8 million sponsoring the Scottish Premier League.
So what’s going wrong? In September last year, credit ratings agency Moody’s downgraded the Clydesdale’s long term bank deposit and senior debt rating in response to rumours it would be sold off by NAB: rumours which seem a lot more solid given NAB’s announcement now. Before then, the Financial Standards Authority refused Clydesdale’s request to share NAB’s advanced internal ratings-based status, flagging concerns to analysts about its internal accounting procedures.
Potential buyers include NBNK, the new bank ran by former Northern Rock chief executive Gary Hoffman. Ian Fraser, in the Sunday Herald, has already detailed the risk of “triggering a rash of home repossessions and corporate bankruptcies across Scotland†such a possible sale of the Clydesdale to NBNK, with former MPs Lord Forsyth and Lord McCall on the board, could prove.
But NAB’s moves could be less about the Clydesdale going bad, and more about it just not being good enough. Margins are squeezed and lending activity is subdued due to the state of the economy, but the UK operation of Clydesdale and Yorkshire Banks remains profitable, even after today.
Nonetheless, Citigroup analyst Craig Williams describes the Clydesdale as a “millstone†around the neck of NAB. NAB has given £1.7 billion, including a £400m payment last month, to bolster the Clydesdale since 2009, helping to meet regulatory demands and to protect from future loan losses. The announcement of a strategic review could therefore be a decision by NAB to cut its losses from a market where economic recovery still seems far off; especially if its other interests continue to perform better.
George Osborne and the coalition government have put all their hopes in the private sector to drive an economic recovery in 2012; slashing the public sector in the hope that a private sector recovery will boost consumer confidence and increase spending and business investment.
But when the same private sector surveys the state of the UK economy, judges what its chances of recovery are, and then seems to decide that it’s not worth maintaining a profitable business that employs thousands, Osborne’s plans must indubitably be proven deeply flawed.
It would be a travesty for the Scottish economy if an institution like the Clydesdale Bank was diminished. Not because of its banking behaviour, but because a Westminster government continues to pursue misguided austerity measures which don’t inspire and only scare the private sector. Scottish banking, its customers and the businesses it supports, deserve better.
#1 by Doug Daniel on February 7, 2012 - 3:12 pm
This is a perfect example of how the referendum debate should not be “can we afford to become independent?”, but rather “can we afford NOT to?”
#2 by John Ruddy on February 7, 2012 - 5:00 pm
Huh? You suggesting that we should become independent to nationalise Clydesdale Bank? Because I fail to see how the constitutional status of Scotland matters one bit as to what one private, foreign company does with one of its assets (which happens to be located in Scotland).
#3 by Doug Daniel on February 7, 2012 - 5:23 pm
So did you just not bother reading Kirsty’s article, or was the point – that the UK government are at fault here – too subtle?
#4 by Iain Menzies on February 7, 2012 - 5:53 pm
so when a private firm looks and says, you know what, things dont look great, maybe we shouldnt be so exposed, your answer is to provide a situation in which a private firm looks and say, you know what, i have NO IDEA what the economic situation will be like thats any firmer than a guess in the next 5 to 10 years. Good plan.
#5 by John Ruddy on February 7, 2012 - 6:40 pm
NAB have also talked about the Euro-zone debt crisis and the high levels of Government debt. Neither of which will be cured by independence, at least in the short to medium term.
The state of the Scottish economy will – for at least the first 10-20 years after independence, and possibly longer – will be strongly tied to the performance of the rUK. They are by far our biggest trading partner.
So the ONLY solution to saving these jobs in the short term an independent Scotland could offer, would be to nationalise the bank.
#6 by Doug Daniel on February 8, 2012 - 9:25 am
Take the blinkers off, because this is a much wider issue than the Clydesdale Bank. See my reply to Barbarian.
#7 by John Ruddy on February 8, 2012 - 10:34 pm
What blinkers? Those are facts. The facts are that even if Scotland became independent overnight, the state of the rUK economy would have so much of an effect on the Scottish economy for the next 10-20 years – almost regardless of what the Scottish Government did – that any company would look at their assets and think whether they would want to hold them.
#8 by Richard on February 7, 2012 - 4:30 pm
I’ve been with Clydesdale for years and was grateful for the stability that NAB provided during the down turn. It would be a travesty for Scotland if one of the 3 note-issuing banks were sold down the swanny. I just hope that NAB can take the long view of the opportunities that independence will bring.
#9 by Craig on February 7, 2012 - 6:38 pm
Look at the context – an Australia bank owning a sub-scale UK operation for no clear strategic reason makes no sense when far better returns on scarce capital can be achieved closer to home.
Whether the UK fails to meet the low growth forecasts or Scotland becomes independent is irrelevant to NAB. In fact they should probably get out of Europe entirely. Asian expansion is where their future lies: directly in China; and indirectly through the Australian export economy’s reliance on China.
The question in Australia is why the hell didn’t NAB get rid of its UK operations 10 years ago.
This is not to say that a Scottish, British or European company wouldn’t see the UK, even in the grip of so-called “austerity”, as a relatively attractive market. It’s just that to Australians there are better markets for them to be in, even in the silly way NAB is in the UK market.
#10 by Barbarian on February 7, 2012 - 8:04 pm
As for independence, why should NAB wait to see if it arrives or not? And if independence happened, is there any guarantee that the economy would be so great it is worth staying? If independence happened in 2016 (realistically the earliest), it may take a few years before the economy is strong. So why should NAB wait 8 or 9 years, when there are better markets elsewhere.
This move will benefit the unionist argument, and the nationalists cannot really blame Westminster without sounding hollow.
#11 by Doug Daniel on February 8, 2012 - 9:23 am
Right, independence won’t happen quickly enough to save the Clydesdale Bank, that’s fairly clear, and even if it happened tomorrow, I doubt NAB would change their mind now.
But that’s not the point. The point is NAB are actually telling us that it’s the direction of the UK economy that worries them. The Tories are locked into this blinkered view that satisfying the ratings agencies will save the economy and telling us private companies will create jobs, yet here’s a private company pointing out how wrong they are. And it’s not just the Tories, because the Lib Dems are locked into it as well, and Labour have decided to follow like lemmings.
This situation shows us that the UK government is just damaging the Scottish economy with it’s “austerity measures”. Whatever interests they think they’re serving, it’s certainly not Scottish interests. That’s the underlying issue here. Why is it so difficult for people to see that?
#12 by Iain Menzies on February 8, 2012 - 10:18 am
cos that isnt the underlying issue per chance?
As quoted in the post, NAB does not say that the austerity measures are damaging, so much as subduing growth…..an important distinction i feel.
Also it is not only UK growth that they point to as concerns. There is also the clusterf*ck (sorry eds. but thats what it is) that is the european situation.
As someone mentioned above, there isnt a huge amount of sense in NAB having the clydesdale bank on its books. Indeed since part of the problem seems to be an increase in the capital reserves that the bank is having to hold, unless your gonna tell us that the SNP (or who ever govern scotland blah blah) would reduce those requirements then you really need to stop trying to spin this for the SNP.
The only way independence changes this situation is if the problem with the rUK economy is Scotland, and by dumping scotland rUK goes better quickly. That might keep NAB here, but might not.
But none of this really matters. This isnt a bad story for the SNP, unless you try and paint it as a bad story for the union, and its not a bad story for the union either, mostly its a worrying story for anyone that works for the bank, but otherwise its just life.
#13 by Iain Menzies on February 8, 2012 - 10:23 am
Ok having just re read this post…..this is a total NON-STORY.
What has happened so far is that a private business is looking at what it is doing.
Now call me crazy, but isnt that something that company’s do on a regular basis?
No one has lost a job. worst case a couple of hundred people might be looking for work, at some point in the future, if the bank is sold or restructured, possible, in the future at some point.
This post, I hate to say, does nothing other than take one bit of news, and try to use it as a stick to beat the government (thats the real one not the kid on one thats actually an exec ;)) with it.
Not Better Nations finest hour.
#14 by Ken on February 8, 2012 - 10:54 am
“This situation shows us that the UK government is just damaging the Scottish economy with it’s “austerity measuresâ€. Whatever interests they think they’re serving, it’s certainly not Scottish interests. That’s the underlying issue here. Why is it so difficult for people to see that?”
Are there indications that an independent Scotland wouldn’t follow the same economic policies from tightening public spending to full on austerity measures (at the worst)? I’m struggling to think of a European / neo-liberal economy that isn’t doing some form of it for now.
#15 by Indy on February 8, 2012 - 12:21 pm
It seems unlikely to me that an independent Scotland would be able to start nationalising banks.
But surely it would be quite feasible to start one up?
Is there any reason why there should not be a state-owned high street bank? Which could help secure public investment and operate in an ethical way? Obviously it would need to be set up at arms length from the government but I would think a lot of people would be quite interested in putting their money into that. I certainly would. I’d be quite happy to have a modest return on my savings if I knew that the money was also going to benefit the wider community.
I think we all need to start thinking differently. It’s always assumed that everyone is naturally greedy but a) we’re not and b) we’ve all seen where a culture of greed has landed us. This would be a really good time to promote some of those good old fashioned values like thrift, hard work, responsibility etc.
#16 by oldchap on February 8, 2012 - 4:44 pm
It’s been done before – the Girobank. No reason it couldn’t happen again.
#17 by Ben Achie on February 8, 2012 - 9:01 pm
In the current climate, everybody, but everybody, would put their money into a state-owned bank. That’s the reason gilts (government stock) are so high in price, because they are directly guaranteed by the government. What is depressing about the subject of this post is the view taken by NAB and other banks, none of whom are interested in buying Clydesdale, of the prospects for the UK economy generally.
Where there’s hope there can be economic growth, but where there’s no hope….The Tories are digging us into a huge slough of despond, but at least in Scotland we have a prospect of finding a way out of it. For the rest of the UK there is little prospect of reversing the flow of resources and power to the south-east of England, and the inevitable decline that goes with that.
#18 by Chris on February 10, 2012 - 10:40 am
Lloyds have been forced to sell excess branches after the HBOS takeover. As part of the branches put up for sale were the old TSB Scotland network. These will now be taken over by the Co-operative Bank. Which is a far better solution than a state owned bank.