National Australia Bank will restructure its loss making business in the United Kingdom after it contributed to a 15.6 per cent fall in the group’s first half profit.
NAB’s UK business posted a STG25 million ($A39.22 million) loss for the six months to March 31, down from a STG77 million ($A120.79 million) profit in the previous corresponding period.
Increased funding costs and higher bad debts contributed to the loss, NAB said.
The group’s overall net profit in the six months to March 31 was about $2.05 billion, a 15.6 per cent drop in the previous corresponding period.
Chief executive Cameron Clyne said the UK business would be simplified to adapt to the weak economic conditions there and improve returns for NAB in the medium term.
“In the last half year there has been a significant downgrade in the growth prospects of the UK economy, in part reflecting the drag on its recovery from heightened weakness in the euro zone,” Mr Clyne said in a statement.
“In addition, the commercial property market, which had previously seen signs of recovery, has recently experienced a double dip as the recovery stalls and other banks accelerate the reduction in their CRE (commercial real estate) exposures.
“This has contributed to the current downturn in the UK being longer and slower to recover than experienced in the 1930s following the Great Depression, and has led us to take these actions at this time.”
NAB’s first-half result, which is yet to be finalised and will be announced on May 10, will include a $1.13 billion charge on bad debts, up 14.4 per cent from the previous corresponding period.
The bank’s interim dividend will be lifted, though, to 90 cents per share, fully franked.
Its cash earnings in the first half if fiscal 2012 were $2.82 billion, up 5.7 per cent from the previous corresponding period.
NAB had been reviewing its UK business, and has opted for a restructure instead of a complete sale.
It will simplify the business to focus on retail banking and lending to small and medium sized business in Scotland and England.
The majority of commercial real estate assets on the UK balance sheet will be transferred to the group in the first half of fiscal 2013, NAB said.
The transferred real estate portfolio will be managed separately by NAB.
“Retail banking in the UK continues to deliver reasonable returns and despite challenging market conditions, achieved growth in both deposits and mortgages,” Mr Clyne said.
“Business banking in the UK will run a simpler business model focussed on Scotland and Northern England.”
The restructure will come at a significant cost to NAB.
Redundancies, lease-break fees and other costs will total STG195 million ($A305.91 million), the majority of which will be incurred in the second half of fiscal 2012.
More than 1,400 full-time employees will be lost in the UK by the end of the 2014/15 financial year.
“While every effort will be made to support our people, the substantive repositioning of the business will impact roles in the UK,” Mr Clyne said.
“The employee consultation process will commence shortly.”
The restructure would save NAB about STG74 million ($A116.09 million) a year once implemented, the bank said.
