National Australia Bank sees accounting loss from UK unit’s separation: Allays fears of dividend cut

While steering ahead with the demerger plans, National Australia Bank Ltd (ASX.NAB) is not without concerns that “significant” accounting loss will accrue from the separation and initial public offering of its UK unit.

According to the plans, the bank is set to spin off CYBG Plc by February 2016 and the estimated loss could range from AU$1.71 billion to AU$4.67 billion. However, the bank reiterated that its cash earnings will not be hurt as capital levels to pay the dividends is intact, according to the presentation made by the bank. On book value, the accounting loss would be around $1.71 billion and at half the book value, it can boom to $4.67 billion, reports Bloomberg.

Shareholders meeting

National Australia has called a shareholders meeting to approve the separation Jan. 27.

“After more than a decade of worries for National Australia investors, the accounting loss is the final disappointment,” noted David Ellis, a Sydney-based banking analyst at Morningstar Inc. He said some loss is natural and added that despite losses exiting the UK makes sense for shareholders on a long term basis.

National Australia is expecting that its financial metrics will improve after the hive off. For the shareholders, the deal will be sweet; they will get one security in the UK unit for every four National Australia shares held. Further, the CYBG shares will be listed on the London Stock Exchange and the CHESS depositary interests will be on the ASX, the bank said.

Dividend fears allayed

The National Bank also tried to allay fears that the bank will chop the dividends after selling the British subsidiary which has been giving less than 4 percent earnings. In an update to shareholders, NAB said cash earnings are unaffected by the deal and there will be no slicing of dividends.

The NAB said one-off costs to offload Clydesdale would be about $379 million before tax. Credit Suisse analyst Jarrod Martin said the “expensive” transaction can go up to $500 million, including an underwriting fee for the IPO and other costs, reports The Australian.

The hive off is part of Chief Executive Officer Andrew Thorburn’s strategy on moving out underperforming businesses and paying more focus on Australia and New Zealand corporate loans and mortgages.

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