If all goes as expected, NAB shareholders will directly own soon a piece of its British business, Clydesdale Bank. Most in the market view this demerger, which be voted on by shareholders on Wednesday, as good news for NAB. It will finally offload an asset that has been a persistent drag on profit.
But what should investors make of the stock in Clydesdale they might own soon? Here are some of the key questions the spin-off raises for investors:
1. How does the transaction work?
NAB is planning to spin off 75 per cent of Clydesdale to its shareholders and sell the remaining 25 per cent to institutional investors in an initial public offering.
Clydesdale will be listed on the London Stock Exchange and Australian shareholders will be able to own and trade the stock on the ASX through what is known as a depository interest, under the ASX stock ticker CYB.
NAB's price range for the float is £1.75 ($3.57) to £2.35 per Clydesdale share.
Shareholders don't need to do anything to receive the stock, but those with fewer than 2000 NAB shares should decide if they want to sell their Clydesdale entitlement into a share-sale facility.
2. What will NAB shareholders get?
Australian investors in NAB will receive one share in Clydesdale for every four NAB shares they own.
So someone with $20,000 in NAB stock will find themselves owning about 180 Clydesdale shares, worth between £315 and £420.
The exact value of the Clydesdale stock will be set when it starts trading on February 2 in London. The number of NAB shares they own will be unchanged.
3. What are the pros of holding Clydesdale shares?
While this business has been a long-running headache for NAB, some broking analysts reckon it has potential as a turnaround story.
Its return on equity is low at about 8 per cent, but the optimistic view on this is that it creates plenty of room for improvement. Management has made it clear that cost cuts are on the table: its cost-to-income ratio is high at 75 per cent.
"It's always easier to cut costs than raise revenue," Bell Potter banking analyst TS Lim said.
One of the biggest sources of pain for NAB came from redress costs Clydesdale was forced to pay after mis-selling complex financial products to customers. However, the future liability for these specific penalties was capped at £1.7 billion by the British regulator, which made NAB tip in the cash as condition of exiting the country.
A 2012 Credit Suisse report into spin-offs among the top 1000 stocks in the United States also found the company being spun off tended to outperform the market in the first year after the demerger.
4. And the cons?
This is not a stock that is about to generate the type of big dividends paid by the big four domestic banks.
It is aiming to pay a dividend in 2017, but this will be only a "modest" portion of its earnings. Over time it is aiming for a dividend payout ratio of about 50 per cent. Any dividends paid will not be fully franked.
Credit Suisse analyst Jarrod Martin said that unless return on equity could improve, its ability to be able to sustain a 50 per cent dividend payout ratio over a reasonable timeframe was "questionable".
Mr Martin also said much of Clydesdale's senior management team, while experienced, did not have a long track record working together and they faced a challenging task in executing a significant turnaround at the bank.
Investors will also be exposed to currency risk – movements in the pound could have good or bad impacts on the stock. And Clydesdale will of course be heavily exposed to conditions in the British economy.
5. How do I sell the stock?
Many Australian shareholders might decide against owning Clydesdale and just taking the cash, but how you can do this depends on how much stock you own.
If you have fewer than 2000 NAB shares, you have the option of selling your allocated Clydesdale shares into a share sale facility without having to pay brokerage fees. Shareholders have until February 3 to decide whether to participate in this.
Shareholders who own more than 2000 NAB shares can sell their allocation on the market when Clydesdale shares start trading in early February.