NAB's Clydesdale and Yorkshire Bank rises on UK sharemarket debut

CYBG Plc, the UK consumer-lending division sold by National Australia Bank Ltd., closed 6 per cent higher on its first day of trading in London.

The stock started the day trading above the £1.80 float price before finishing at £1.92.

National Australia raised up to 396 million pounds ($805 million) from the initial public offering of the unit that was priced at the lower end of the indicated range. The IPO values the company at about 1.58 billion pounds and follows the sale of 75 per cent of the unit to shareholders in Australia.

The IPO draws to a close years of struggles in the UK for National Australia Bank.
The IPO draws to a close years of struggles in the UK for National Australia Bank. Photo: Bloomberg

The 178-year-old CYBG, owner Clydesdale and Yorkshire Bank, is the largest publicly traded independent bank battling to win market share from Britain's top four lenders, which control as much as 80 per cent. The challengers include Richard Branson's Virgin Money Holdings UK Plc and J.C. Flowers & Co.'s OneSavings Bank Plc.

The IPO draws to a close years of struggles in the UK for National Australia and allows Chief Executive officer Andrew Thorburn to shift focus to its home markets of Australia and New Zealand to lift returns that have lagged competitors. National Australia has seen multiple writedowns, capital infusions and losses at the UK unit, which it acquired in 1987.

'Tough decision'

"It must have been a very tough decision to accept this pricing for National Australia and its management must have concluded holding on to it was too much effort for too little return," Brett Le Mesurier, a Sydney-based analyst at APP Securities Ltd., said. "National Australia had no option, given it was a poor-returning business."

CYBG was sold at 180 pence a share from a 175 pence to 235 pence initial range offered to investors, the Melbourne-based lender said in a statement.

National Australia delayed the finalisation of the IPO on Tuesday by 24 hours after an unidentified ratings agency asked for information that could lead to a downgrade to CYBG's short- or long-term credit ratings. CYBG doesn't expect any downgrade to have a material impact on its ability to raise funding, National Australia said.

CYBG Valuation

The IPO pricing values CYBG close to 0.56 times net value of its assets. The valuation compares with the 0.72 times book value average for UK lenders with a market capitalization of at least 2 billion pounds, according to data compiled by Bloomberg. Barclays Plc is trading at 0.5 times the net value of its assets, while Lloyds Banking Group Plc is priced at book, the data show.

With about 39 billion pounds in total assets, CYBG lags sixth-placed Nationwide Building Society, which has a balance sheet of about 203 billion pounds.

CYBG is seeking to grow mortgage and consumer lending by as much as 50 per cent and loans to small-and-medium-sized companies by as much as 25 per cent to help it generate return on equity, a measure of profitability, of more than 10 per cent within five years.

Bloomberg