Clydesdale and Yorkshire Bank shareholders could be heading for disappointment

The National Australia Bank Ltd. (ASX:NAB) share price fell today.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The National Australia Bank Ltd. (ASX: NAB) today announced an indicative pricing range for shares in the IPO of its soon-to-be-demerged UK bank Clydesdale and Yorkshire Bank (CYBG).

Shares are expected to be priced for institutional investors between 175 pence and 235 pence, which would value the bank in the region of £1.54 billion to £2.07 billon. That would imply a multiple of book value of FY15 net tangible assets of 0.56 to 0.76 times.

Earlier in the year NAB raised $5.5 billion in new equity, with $2.8 billion of that being contributed by retail shareholders as it looked to strengthen its balance sheet to prepare for, inter alia, the UK float and regulatory capital adequacy requirements.

Notably, the bankers have elected to dump 75% of their ownership interest in the troubled UK bank on their own retail shareholders, with eligible shareholders receiving one CYBG share or ASX-quoted chess depositary instrument for every four NAB shares held.

The moderate outlook and poor past performance of the UK bank may see many investors head for the exits once the stock is listed and the current turmoil engulfing global capital markets will not help investor confidence in CYBG either.

Indeed, management's decision to palm 75% of CYBG off to NAB's own retail shareholders is indicative perhaps of a lack of institutional or professional investor enthusiasm for a regional UK bank with little in the way of standout qualities.

The bank's colourful recent history includes problems around mis-selling insurance products, financial conduct, disastrous property loans, and regulatory fines, CYBG has a rap sheet to make Ned Kelly proud.

In fact the UK Financial Conduct Authority is reportedly requiring the NAB to set aside more than $3 billion to cover potentially more claims against CYBG in the future.

The CYBG also faces the same capital adequacy regulatory headwinds as other global banks, while the UK property market's outlook is moderate and the economy itself still vulnerable to another significant downturn. As in Australia, investor lending practices to property investors are also coming under the scrutiny of regulators and face headwinds.

CYBG's poor past performance means it firmly falls under the 'turnaround' category and Warren Buffett did not reportedly say 'turnarounds seldom turn' for nothing.

Despite the moderate pricing of the CYBG, I expect the share price will come under pressure when it lists with NAB's long-suffering retail shareholders feeling the pain again if CYBG continues to struggle into the future.

The good news though is that divesting the UK business may prove a big positive for NAB shares, which are down 20% over the past year.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned. You can find Tom on Twitter @tommyr345 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »