National Australia Bank Ltd. shares up on UK demerger

Credit: NAB

This morning the National Australia Bank Ltd. (ASX: NAB) share price was riding 0.9% higher after the bank confirmed it’s proceeding with the divestment of its UK subsidiary, Clydesdale Bank.

In late 2014 and again earlier this year, NAB’s newly established CEO, Andrew Thorburn, made plans to divest the troubled UK business to public markets. The plan was to rid itself of the troubled assets and focus on its core assets in Australia and New Zealand; however, NAB was required to make available a whopping $3.2 billion to support Clydesdale.

The UK’s Financial Conduct Authority took this step because Clydesdale Bank was the focal point of criticism from the UK parliament following its alleged misselling of products. However, if the billions of dollars are not required to fund compensation, the money will be returned to the Australian bank.

NAB’s plan is to sell 75% of Clydesdale to its shareholders and 25% to institutions. It’ll have a primary listing on the London Stock Exchange and a CHESS depository interest on the ASX.

After divesting its US bank, Great Western Bancorp, both NAB and its investors believe a focus on its ‘core’ local businesses will give it a far better chance of producing outsized returns. Since NAB bought the bank in 1987, Clydesdale has been repeatedly blamed for the significant underperformance of its shares versus that of its major rivals.

Source: Google Finance

Source: Google Finance

Buy, Hold or Sell?

NAB says its demerger booklet will be released during the week commencing 7 December 2015, and the demerger remains subject to various court and regulatory approvals. Nevertheless, investors will likely be excited to hear of the bank making an official divestment decision.

NAB could be a dark horse among Australia’s big banks, but I’m not a buyer of bank stocks at today’s prices. Indeed, NAB is a ‘hold’ in my book.

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Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned.

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Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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