National Australia Bank (NAB) says the current exposure to European government debt is “negligible” and it is committed to retaining a presence in the UK.
The Melbourne-based bank had “fairly negligible exposure certainly to sovereign entities and certainly nothing that’s different from any of our competitor banks,” chief executive Cameron Clyne said.
Speaking at NAB’s annual meeting in Adelaide, Mr Clyne told shareholders the bank had been reducing its exposure to European sovereigns and entities since the credit crisis in 2008.
But a year after labelling NAB’s UK subsidiaries “dead weights”, and signalling a possible sale of the Clydesdale and Yorkshire banks, chairman Michael Chaney said NAB is committed to retaining its UK presence.
NAB expects the UK economy to remain subdued in 2012, which will remain a drag on Clydesdale and Yorkshire banks’ low single digit return on equity, he said.
“Our strategy there is to continue to run the business, to rationalise it, and to make sure its returns do increase,” Mr Chaney said on Thursday.
NAB abandoned its previous plan to expand in the UK, and the opportunities to reduce its UK exposure “really haven’t been there”, he added.
“We really are keeping our options open and if we were to do anything (in the UK) it would only be with shareholder value in mind, and in the current market that’s a pretty difficult thing to achieve in terms of expansion.”
He was speaking hours after Lloyds Banking Group announced The Co-operative Group as the preferred bidder for the sale of Lloyds’ retail and commercial business, dubbed Verde.
The Co-operative Group beat UK bank venture NBNK in the bidding war for Verde’s 632 branches, 9,000 staff and five million customers, triggering speculation that NBNK may now set its sights on buying NAB’s UK units.
All three global ratings agencies downgraded Clydesdale Bank in recent weeks, with Fitch Ratings citing Clydesdale’s diminishing strategic importance to its parent bank.
Both Mr Cameron and Mr Chaney said global wholesale term funding markets were effectively closed, which had driven NAB’s cost of funds higher, but those markets would likely free up if the situation in Europe improved.
NAB can access short-term funding and sees no need to change its profit forecasts for fiscal 2012.
“At the moment we feel comfortable enough that our own projections for profitability in next year can be maintained, but that really relies on the markets being stable and not…worsening,” Mr Chaney said.
An agreement at last week’s European Union summit to implement a closer fiscal union was an important step in resolving the debt crisis, but it was primarily focused on long term objectives and did not provide a clear solution for the short term, he added.
“It leaves unanswered questions about immediate relief or stimulus to generate growth.”
Australian politicians copped criticism from NAB’s chairman for attacking banks over their changes to mortgage interest rates based on the erroneous contention that banks made super profits and had no right to raise interest rates.
“It is very disappointing that all parties in the federal parliament see it as being in their interest to use banks as a political football.”
