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The Clydesdale Bank share price is soaring on hopes of a Brexit deal

brexit UK flag country map
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The Clydesdale & Yorkshire Bank (CYBG PLC/IDR UNRESTR) (ASX: CYB) is up 10.3% to $2.37 today as British banks surge across the board on hopes the UK will strike a Brexit deal with its European Union antagonists. 

Despite today’s gains Clydesdale Bank shares are still down around 50% since the National Australia Bank Ltd (ASX: NAB) demerged the group onto its own shareholders under the terms of a deal that saw them receive 1 CYB share for every 4 NAB shares held.

Clydesdale Bank has remained dogged by regulatory scandals ever since the GFC of 2009 as British regulators investigate it and issue huge fines and compensation orders mainly for the mis-selling of financial products to consumers.

Investors in local groups like AMP Limited (ASX: AMP), IOOF Holdings Limited (ASX: IFL) and NAB itself know all about how regulatory problems can lead to rising costs and underperformance. 

Clydesdale Bank has struggled to grow profits sustainably for a long time as the UK retail banking market is far more competitive than Australia for example, which is reflected by lower net interest margins as banks compete in the dicey regional UK economy.

Generally, roughly comparable UK banking peers like Lloyds and Barclays have also performed abysmally ever since the GFC. 

As such I would not suggest taking a punt on Clydesdale Bank shares however cheap they may seem versus peers on a price-to-book, price-to-earnings, or other valuation ratios.

While it goes without saying a ‘no deal Brexit’ remains on the table, which will heap more pressure on UK bank stocks again. 

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Returns as of 6th October 2020

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

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