07/28/2014

NAB Sells 625 Million Pounds of U.K. Loans to Cerberus

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National Australia Bank Ltd. (NAB), the
nation’s biggest lender by assets, agreed to sell a 625-million-pound ($1.1 billion) parcel of mostly non-performing commercial
property loans in the UK to an affiliate of Cerberus Global
Investors.

The sale will result in a small gain above the loans’ net
book value and release about 127 million pounds of capital for
the bank when it settles, NAB said in a regulatory filing today.
It will shrink the gross loan balance of the bank’s UK
commercial property portfolio by 20 percent to 2.38 billion
pounds, it said.

NAB’s shares have been weighed down by its UK operations,
where mounting bad debts triggered the first drop in full-year
earnings in 2012 for three years. Britain’s foundering economy
torpedoed the bank’s plan to sell the business or expand through
acquisitions, leading to the transfer of UK real estate loans
to the group balance sheet.

“The fact that economic conditions in the UK are now
improving, particularly in commercial real estate, is increasing
interest from funds that buy distressed loan books,” said David Ellis, Sydney-based analyst at Morningstar Inc. “I expect that
within 12 months, the 2.3 billion pounds remaining will have
been fully runoff.”

NAB shares rose 0.3 percent to A$34.69 at the close of
trading in Sydney. That compares with declines of about 0.3
percent for Commonwealth Bank of Australia and Westpac Banking
Corp. (WBC), and 0.7 percent for Australia and New Zealand Banking
Group Ltd.

Provision Coverage

The sale reduces gross impaired loans in the UK by 48
percent, NAB said today. It will allow the bank to increase
provision coverage on impaired assets on its remaining UK
commercial property portfolio to 60 percent from 51 percent, it
said.

“We’ve progressively reduced our exposure to UK
commercial property loans,” incoming Chief Executive Officer
Andrew Thorburn said in the statement. “We continue to look at
opportunities to optimize return on equity by accelerating the
sale of non-core assets.”

NAB shares have fallen 0.4 percent this year, compared with
a 4.2 percent gain in the benchmark Samp;P/ASX 200 (AS51) index.

To contact the reporter on this story:
Nichola Saminather in Sydney at
nsaminather1@bloomberg.net

To contact the editors responsible for this story:
Andreea Papuc at
apapuc1@bloomberg.net
Iain McDonald, Edward Johnson


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