NATIONAL Australia Bank has taken a further step towards exiting the UK after offloading £1.2 billion of former Clydesdale Bank commercial property loans.
The UK commercial real estate (CRE) portfolio has been snapped up by Cerberus Global Investors for an undisclosed sum.
Cerberus had already bought £625 million of loans from NAB in July this year. The latest deal will see the remaining value of the NAB portfolio drop to £836 million.
NAB took the initial £5.6bn of loans and 4,600 customers on to its own balance sheet more than two years ago to help accelerate restructuring efforts at Clydesdale.
Improvements in real estate values as well as more benign economic conditions in the UK have seen the performance within the portfolio improve, to the extent it made cash earnings of £23m in NAB's annual results to October 31 this year.
While the price paid for the latest tranche was not revealed NAB did say it would lead to the release of around £127m of capital in its half-year results, which cover the six months to March next year.
Cerberus is said to have bought mainly defaulted and high loan-to-value loans.
NAB indicated the proportion of loans deemed "higher risk" in the portfolio has decreased by 93 per cent.
Andrew Thorburn, NAB's group chief executive, hailed the deal as a significant move in his strategy to rid the bank of legacy issues and focus on its core domestic markets.
He said: "This is an important step forward, effectively bringing closure to one of our legacy positions.
"The sale of these higher risk loans in the NAB UK CRE portfolio is another important milestone in our strategy of reducing our low returning legacy assets and sharpening our focus on our core Australian and New Zealand franchises.
"Pleasingly the remaining NAB UK CRE loans are largely strong performing loans, and we will look at other options to manage this small remaining portfolio."
Mr Thorburn is keen to exit the UK as soon as practically possible with a flotation of Clydesdale and Yorkshire banks one option which is being explored.
The UK has acted as a drag on NAB's profits in recent years with provisions for mis-selling of payment protection insurance and complex business loans still rising.
No details were given on how many customers will be affected as part of the latest loan sale.
NAB and Cerberus said they would provide advance notice to enable customers to plan for the transfer.
Credit Suisse analyst Jarrod Martin said the sale was another step in the bank's efforts to lower its exposure to the UK economy, and attention would turn to its plans to sell Clydesdale and Yorkshire banks.
He noted that the bank would no longer report details of its troubled UK commercial real estate loans separately from other lines of business in the NAB accounts.
"They are signalling that the issues with the commercial real estate portfolio are behind them," Mr Martin said.
"The market's eyes will now be all on Clydesdale and on how quickly, and through which avenue, NAB chooses to exit," he said.
In a separate transaction announced yesterday Cerberus has agreed to pay up to £1.1 billion of Irish real estate loans from Royal Bank of Scotland.
The deal is expected to complete in the first quarter of next year. RBS said it will use the proceeds for general working capital purposes.
The loans have gross assets of around £4.8bn and were said to have recorded an £800m loss in 2013, mainly as a result of impairment provisions.Author: Greig CameronSource: www.heraldscotland.com