National Australia Bank to raise $4.3bn for UK exit

National Australia Bank, the country's largest lender by assets, said it would raise A$5.5bn (US$4.4bn) in a bid to lift its tier one capital ratio and enable its exit from the UK banking market.

The company plans to issue 194m new ordinary shares at A$28.50 apiece. The move will reduce cash earnings per share for the March 2015 half of the year by 4.5 per cent, NAB said.

NAB is in the middle of a strategic upheaval, with plans to withdraw from its troubled UK businesses, Clydesdale and Yorkshire banks, to focus on its core operations in Australia and New Zealand.

Andrew Thorburn, group chief executive, said that the bank went ahead with the rights issue as a "strong balance sheet has always been a priority".

"The capital-raising facilitates our proposed exit from the UK banking business and positions us ahead of anticipated regulatory changes," he said.

The performance of Yorkshire and Clydesdale has weighed on NAB over recent years, as the UK units have suffered from bad property loans and claims of mis-selling of payment protection insurance and interest rate hedging products.

NAB said 70-80 per cent of Clydesdale would be demerged, with the remaining 20-30 per cent to be floated in an initial public offering to institutional investors. NAB added that it was still open to a sale of unit.

The bank is targeting an exit by the end of 2015 with a float on the London Stock Exchange. UK regulators have asked NAB to provide £1.7bn in capital support to cover any future legacy conduct costs related to mis-selling of financial products, a decision that prompted the bank to raise capital.

David Ellis, an analyst with Morningstar, said NAB's move was positive for the bank. "NAB has gone for the big bang approach while the other big banks seem to be following a slower, phased approach to capital-raising," he said.

Australian banks are under pressure at home and abroad from regulators to raise their capital levels to insure against future financial shocks. In December, a government-led review into the country's financial system recommended that banks hold billions of dollars in extra capital to ensure that they are among the top 25 per cent of international banks in terms of capital adequacy.

The report estimated that Australia's big banks have a common equity tier one capital ratio of 10-11.6 per cent - below the 12.2 per cent level held by the top quartile of international banks.

NAB estimated that its Basel III tier one equity ratio would have been at the "lower end" of its target of between 8.75 per cent and 9.25 per cent following the divestiture of its UK business had it not gone through with the capital-raising.

The bank also said it had reached an agreement with a "major global reinsurer" to release $500m in tier one capital.

The capital plans accompanied NAB's first-half results, with cash earnings roughly in line with analyst forecasts at A$3.3bn in the six months to the end of March, up 5.4 per cent on the same period a year earlier.

Additional reporting by Eric Platt in New York

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