National Australia Bank will demerge its troubled Clydesdale Bank business and seek A$5.5bn (£2.87bn) in one of Australia’s biggest ever capital raisings.
The bank said on Thursday that the fundraising would bolster its balance sheet and provide a buffer to meet tougher regulatory requirements.
But it was also necessary to help NAB exit the Clydesdale business, which has been a drag on profits since the financial crisis, by the end of the year.
“In relation to exiting our UK banking business, we have been examining a broad range of options including those provided by public markets,” said NAB chief executive Andrew Thorburn.
“It is a priority to exit this business, and we are today announcing our intention to pursue a demerger and initial public offering of the UK banking business.”
The bank will look to demerge 70-80% of Clydesdale to NAB shareholders while the remaining 20-30% will be sold through an initial public offering to institutional investors.
UK regulators had told the bank that it would have to provide up to $3.2bn (£1.7bn) to shield the bank against costs from mis-sold financial products.
In April, Clydesdale was fined a record £20.7m by UK regulators for its treatment of up to 100,000 customers seeking payment protection insurance (PPI) payouts. British banks have already paid out £48bn ($92bn) to customers.
Thorburn said that a strong balance sheet had always been a priority at NAB “which is why we are announcing that we will be raising $5.5bn of capital through a rights issue”.
“The capital raising facilitates our proposed exit from the UK banking business and positions us ahead of anticipated regulatory changes.
“While there is still much more to be done, we are clear about our priorities and are focused on what needs to be achieved,” he added.
The capital raising will see NAB issue 194 million new shares, which is around 8% of its issued capital, at $28.50 each. The offer price was 19% below NAB’s closing price on Wednesday. NAB shares are currently in a trading halt.
The size of the raising came as a surprise to analysts and market watchers.
“You’re talking about the entire amount of money that was raised in the Medibank Private float, it’s a huge raising,” IG strategist Evan Lucas said.
Lucas said NAB was unlikely to have trouble carrying out the raising, despite its size, though it would deliver a significant blow to its share price.
“In the longer term it’s probably responsible but in the short term it’ll be a market headache.”
The bank posted a 20.4% jump in half-year net profit to $3.44bn in the six months to March 31.
Cash profit, the industry’s preferred measure which strips out volatile items, rose 5.4% to $3.32bn.
