View from City Road: NatWest's valued tenant

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The Independent Online
NOT content with worrying about their borrowers' property problems, the clearing banks have fallen out over property valuations in their own balance sheets. This appears to raise an important issue about how companies should value their own premises.

Yesterday Midland made no secret of its irritation at finding that National Westminster had decided, in its results last week, to take what you might call a positive view of the value of its own offices. Essentially, NatWest said its valuation reflected the fact that its freehold properties had NatWest as a blue chip long-term tenant.

On that basis, which NatWest said reflected its 'ongoing occupation and the quality of its covenant', the properties should be worth more than on an open market valuation. Midland stuck to the open market valuation but will no doubt be tempted to follow NatWest next time, given that the Bank of England approves.

The effect of making the switch in 1992 would have been to raise Midland's tier one capital ratio - the most important measure of strength - from 5.7 per cent to almost 6 per cent, half as much again as the international minimum.

The results as a whole show that HSBC Holdings should be pleased with its acquisition of Midland, which is looking a much more professional operation. The underlying profit improvement before bad debts is encouraging. Second-half provisions are a touch on the high side, but Midland has been more conservative than its peers.

There will be a pounds 253m contribution to the pre-tax profit of HSBC (after various adjustments). But it is not Midland setting the pace in the HSBC share price, though the results helped in a 23p gain to 624p.

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