CYBG Ve Bionic Etf

By Margot Patrick 

LONDON-- National Australia Bank Ltd.'s three decades in the U.K. ended with a whimper Wednesday as it floated its British banking arm at a sharp discount.

Scotland's Clydesdale Bank and northern England's Yorkshire Bank, together dubbed CYBG PLC, were valued at about GBP1.6 billion (about $2.3 billion), or roughly 40% of book value. NAB Group Chief Executive Andrew Thorburn said it was a good response from investors in volatile markets, while CYBG Chief Executive David Duffy said the newly independent bank could play a key role in an anticipated consolidation of Britain's smaller banks.

NAB ended years of speculation in November by laying out plans to exit the U.K. and focus on its more-profitable operations in Australia and New Zealand. It paid GBP420 million for Clydesdale Bank in 1987 and GBP900 million for Yorkshire Bank in 1990, just as Britain was entering a recession and housing market downturn.

The businesses never achieved the profits or scale that NAB executives had hoped for, and were hit hard by souring commercial property loans after the U.K. entered another deep recession in 2008. The bulk of the commercial real estate debt was transferred to NAB in 2012 and NAB began an effort to shrink and simplify the U.K. business.

"It was a burden for NAB in historical terms when they had not addressed the failings in the bank. Now it's the largest challenger in the U.K. in SME lending and retail, and one of the best capitalized banks," Mr. Duffy said in an interview.

A clutch of small banks, so-called "challengers" to the big five British banks that dominate lending and mortgage markets, have sprung up in the past several years and are expected to eventually merge. Spain's Banco de Sabadell SA snapped up TSB Banking Group PLC last year, while Royal Bank of Scotland Group PLC is preparing to sell or spin off its Williams & Glynn unit, potentially sparking further consolidation.

"We would be one of the logical consolidators in the market," CYBG's Mr. Duffy said. "There is a logic to consolidation if and when it becomes appropriate for our shareholders."

Clydesdale Bank, based in Glasgow, has around 140 branches across Scotland. Yorkshire Bank, headquartered in Leeds, England, has around 180 branches in the north of England and Midlands.

The shares offered in the CYBG float were bought by institutional investors in the U.K., U.S. and Australia, Mr. Duffy said. Existing NAB shareholders received 75% of the shares through a demerger of the unit from NAB.

NAB's U.K. exit followed the bank's retreat from the U.S. last year when it sold shares in subsidiary Great Western Bank. The moves come as banks across the world are narrowing their geographical and business focus to adapt to tougher regulatory conditions.

CYBG represented 8.8% of NAB's total assets as of Sept. 30, 2015 but contributed only 3.3% to pretax earnings, NAB told shareholders last year. Overseeing the business was taking up "a disproportionate share of NAB board and management resources." A series of fines and conduct charges at CYBG over missold products had also cut into NAB's cash earnings, it said.

Write to Ian Walker at ian.walker@wsj.com and Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

February 03, 2016 06:49 ET (11:49 GMT)

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