Moody’s downgrades Clydesdale Bank

Moody’s cut its rating for the bank from A2 to Baa2 just days after the Clydesdale’s owner, National Australia Bank (NAB), delivered a rise in third-quarter profits.

NAB’s chief executive, Cameron Clyne, described the downgrade, which could lead to the bank paying higher wholesale borrowing costs, as “disappointing”. NAB also owns Yorkshire Bank.

Moody’s noted: “As a result of NAB’s intervention, the bank is well-capitalised and has substantial liquid assets, and we see no immediate threat to creditors from its near-term challenges.

“However, the weakness of its franchise and uncertainty over its future strategic direction, alongside NAB’s stated intention to sell the bank over the medium term, leaves Clydesdale in an uncertain position.”

Mr Clyne said: “Clydesdale has a smaller and stronger balance sheet following the transfer of 
the vast majority of its commercial real estate portfolio to NAB in 
October 2012, materially improving Clydesdale Bank’s risk profile.”

He also said there had been a significant improvement in the “funding, liquidity and capital position of the business”.

Mr Clyne added: “Progress on simplification of the UK banking business has been pleasing, with the bank successfully refocusing on its core retail and SME business lending in northern England and Scotland.”

In the three months to June, NAB revealed improved cash earnings in its UK commercial real estate portfolio with better loan performance and higher income. The improved performance prompted renewed speculation about a sale of Yorkshire and Clydesdale banks, which analysts said could happen sooner rather than later.