NAB’s $3 billion pay day?

Sale of UK subsidiaries could be on the cards

National Australia Bank (ASX: NAB) shareholders could see their shares rocket, after the UK’s Sunday Times newspaper reported that Spanish banking giant, Santander, is considering making a £2 billion (A$3 billion) bid for NAB’s UK businesses.

The paper reports that executives in London and Madrid have been considering the move since the collapse of talks to buy a network of 316 branches from Royal Bank of Scotland last October.

NAB owns the Clydesdale and Yorkshire banks, but has come under pressure from shareholders to jettison the loss-making businesses. Nab scrapped plans to sell the subsidiary banks last April, after struggling to find a buyer, and instead announced plans to cut 1,400 jobs to cut costs and shrink the businesses.

Rising bad debt charges saw the banks report a combined £139 million loss in the year to September 2012, thanks to a weak UK economy and poor quality small business and commercial real estate loans.

The Spanish bank is said to be looking at a listing of its UK arm, and the acquisition of NAB’s assets would give it a strong position in small to medium business lending, as well as bulking up the UK bank. Santander UK’s chief Ana Botin said in an interview with the Sunday Times that the planned IPO of the business may be launched with months, and could be valued at around £10 billion.

NAB’s share price has underperformed the market and its peers, Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) over the past 12 months. Analysts have suggested the UK businesses have acted like an anchor around NAB’s neck, with the company’s share price falling 26% since 2008.

The asset sale should improve the bank’s return on equity and capital levels, but could leave NAB having to report a capital loss of around $2 billion.

The Foolish bottom line

Australian companies’ performance has been notoriously bad when it comes to offshore acquisitions. Renowned fund manager Peter Morgan has repeatedly questioned the need for Australian companies to expand offshore through acquisitions in markets they have little or no understanding of. The sale of NAB’s UK assets will end a dismal 25-year chapter in the bank’s history, although shareholders will likely be delighted.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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