Third time lucky for NBNK?

Having lost out to Co-operative Financial Services for the Lloyds Banking Group disposal and to Virgin Money for Northern Rock, word is that NBNK, the Lord Levene and Gary Hoffman led vehicle to acquire a bank, is looking to acquire the UK assets of National Australia Bank. NAB announced earlier this week a three month strategic review of their UK assets, namely Clydesdale Bank and Yorkshire Bank. ‘Strategic reviews’ normally result in one of two outcomes either the disposal/closure of the assets or severe cost-cutting. Only in 2011 Cameron Clyne, Group CEO of NAB, had been saying that he wouldn’t be disposing of the UK assets with valuations being so low. Bank valuations have hardly improved since then, but with no short term prospect of the UK economy improving or bank valuations strengthening it appears that his views may have changed on that, which could be good news for NBNK.

Certainly for NBNK, NAB UK is a far lower risk, lower cost option than the acquiring of the 632 branches along with the Intelligent Finance, C&G and TSB brands that Lloyds Banking Group’s Verde consists of. After all Yorkshire Bank and Clydesdale bank are going concerns, there would be no short-term need to manage the migration of customers away from their chosen bank or to migrate onto new systems. Yorkshire Bank and Clydesdale could rightly be seen as already challengers in some areas of banking particularly in SME and small corporate banking. Under the leadership of the former CEO, Lynne Peacock, they made significant investments in the South-East and were seen as innovative with their airline lounge style branches for SMEs and their business speed dating. However both Clydesdale Bank and Yorkshire Bank have for many, many years been starved of investment. particularly in technology. Their online offering is far behind any of the competition and developing an exciting digital presence will be critical in the battle for customers. Their parent in Australia is, in many ways, a leader in digital for retail banking, particularly in their use of Twitter, youtube and facebook.

One of the early¬†challenges for NBNK, should they be successful in acquiring Yorkshire and Clydesdale, will be what to do with the branding. The loyalty of customers to the Yorkshire brand cannot be underestimated. There are Yorkshiremen and Yorkshire women who have stuck by their bank (and that’s the way they see it) through thick and thin even though the pricing and the service may not have been the best and anyone who messes with a Yorkshireman should be wary of the consequences.

If NBNK isn’t able to acquire the NAB UK assets then where else do they go? It’s not obvious that there are many other opportunities with sufficient scale out there. The question for investors in NBNK is whether it should be three or out?

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