Clydesdale pushes on with float despite more PPI scandal costs

Bank's Australian owner forced to put aside another £500m for mis-selling

National Australia Bank (NAB) has insisted that it would press ahead with a stock market flotation for its Clydesdale Bank division, despite the Glasgow-based lender being forced to make an extra £500m of provisions to cover future expected compensation and fines for mis-selling loan insurance.

This comes on top of the £1.7bn that NAB was ordered by the Prudential Regulation Authority to set aside for “legacy conduct costs” to cover the demerger and flotation of Clydesdale.

The new provisions do not even include anything to cover the potential costs of PPI based on a Supreme Court ruling over the level of commission charged by providers of the payment protection cover.

The FCA is due to rule shortly on the test case and, were it to apply that ruling across the board, banks could face billions of pounds of extra compensation claims. NAB said it would provide a final figure for the new provisions with its full-year figures for the year to September.

At the same time, it will give details of the demerger and flotation on which it said it had made “substantial progress” in the third quarter and which is slated to take place before the end of the year.

NAB is expected to hand between 70 per cent and 80 per cent of Clydesdale shares to its own shareholders and float the remaining 20 per cent to 30 per cent on the stock market.

In pre-float presentations, NAB’s new Irish chief executive, David Duffy, has told potential investors that Clydesdale is the largest of the UK’s second-tier banks with total loans of £28bn – slightly ahead of Virgin Money and TSB.

Yesterday, he said: “In the third-quarter, we have had solid earnings and strong growth in mortgage lending and customer deposits.”

City analysts have previously estimated that Clydesdale could be worth up to £2bn – but big increases in mis-selling costs would slash that valuation.

NAB said Clydesdale’s increased provisions had been “primarily driven by increased costs to run the remediation programme and impact of the past business review”.

Andrew Thorburn, the chief executive of National Australia Bank, said it had made headway with its plans to float Clydesdale.

“Substantial progress has been made on our intention to pursue a demerger and initial public offering of Clydesdale Bank over the last three months and we will provide the market with a detailed update of the proposed transaction at our 2015 full-year results” he said.