Radical surgery at the Clydesdale

Clydesdale Bank branch Image copyright Other
Image caption Clydesdale Bank has 150 branches north of the border

The view of Britain from Australia has never been all that kind or generous. But today, the perspective on the poms is more informative than usual.

National Australia Bank has long wondered about the value of its Clydesdale Bank subsidiary, based in Glasgow and including Yorkshire Bank.

Following the credit crunch, a presence in UK or European banking looked a lot less attractive, when viewed from Melbourne. Australia has strong commodities exports, and financing opportunities beckon from Asia's rapid growth.

The Aussie bank's rather unexciting, conservative and canny outpost in Glasgow won praise for avoiding the disaster that befell Clydesdale's big Scottish rivals.

Tough decisions

But being dull and canny only works so long as you're turning in comparable figures with the home market. And Clydesdale (of which Yorkshire Bank is part) isn't doing that any more.

They had toyed with the idea of picking up Lloyds and RBS assets, when they were forced onto the market by the European Commission.

But with Santander and the Co-op Bank picking them up, or on the way to doing so, NAB has stopped wondering what to do with Clydesdale and Yorkshire, and started taking action.

Chief executive Cameron Clyne has ordered a structural review, and it seems quite a radical one.

There are lots of options, he's saying. Nothing's ruled out, except the status quo. And those who watch NAB most closely are assuming a sale is a strong possibility.

Short of that, there's talk of "re-shaping" the business, which seems to mean taking a surgical scalpel to the bits that weigh most heavily on NAB's otherwise "pleasing" results for the last quarter of 2011.

To the UK chief executive, David Thorburn, this will involve "tough decisions", made in Glasgow. For that, read job losses, and possible closure of some of what it does.

New lending for commercial property has already been stopped, and that loan book looks a likely contender for winding down.

Bad and doubtful

There are 8,300 people now working for Yorkshire and Clydesdale, almost evenly split between Scotland and England. Glasgow and Clydebank have 2,500 of those jobs between them.

Only around a quarter are in the customer-facing end of retail, which is doing relatively well. Customers are being reassured that investment in the service will continue.

Clydesdale doesn't do investment banking, but it has business and corporate activities that reach throughout Britain. Its share of the business market in Scotland is just short of a fifth.

And while it's small by the standards of the big players on the high street, it's far from tiny. Deposits are above £23bn, when last reported. Gross lending was at £33bn.

What's changed is the bad and doubtful debt, rising sharply during last year to reach nearly 1.3% of loans. The number of loans that are running more than 90 days overdue is up only slightly, but it's a long way ahead of the figure for NAB's Australian business.

Strong and sustainable

It's not yet clear how that compares with the rest of the UK banking sector, but it signals that others' bad debt figures from the back end of last year are worth watching closely.

What's changed over the past three years is the sharp rise in Clydesdale's financing costs, with funding costs doubled, capital up by a third, four times as much liquidity and, according to bank sources, £25m of other compliance costs arising from the new regulatory regimes.

Slimming down the bank to make it "strong and sustainable" (a word that's been carefully chosen and implies it's not sustainable as it is) could be a prelude to a sale, unless another bank comes in soon and wishes to carry out the surgery itself.

Barclays has been interested for a while, as Clydesdale's 150 branches and presence north of the border (Yorkshire has another 185 branches) would fit well with the London giant's current retail operations in the rest of Britain.

But if a sale is being sought, it's a brave move by Cameron Clyne to advertise the weakness of Clydesdale's position, and that of the UK bank sector. It doesn't look designed to talk up the price.

But his comments on Clydesdale contain a message that will be uncomfortable reading for some in power in Britain.

From the safety of Melbourne, the bank boss argues that it's not just the eurozone crisis making Britain's economic recovery longer and slower than anticipated - it's also the continuing austerity drive by the UK government.