Moody’s downgrades Clydesdale Bank over ‘strategy uncertainty’

Ratings agency Moody’s has downgraded Clydesdale Bank due to uncertainty over its future ownership and strategic direction.

Last week Moody’s downgraded the bank’s long-term bank deposit and senior debt rating three notches from A2 to Baa2 and its short-term debt and deposit rating from Prime-1 to Prime-2.

Following a strategic review, parent company National Australia Bank announced in April 2012 it had decided to focus its UK operations on retail lending and lending to small and medium-sized businesses.

The review also saw NAB cut 1,400 UK jobs by 2015 and transfer £6.2bn from Clydesdale’s commercial loan book to NAB’s balance sheet following losses on the portfolio.

NAB has previously said it would consider selling its UK banking brands, Clydesdale and Yorkshire.

Moody’s says the bank’s decision to pull out of commercial mortgage lending last year has left its franchise “materially weakened”.

It says: “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.”

NAB group chief executive Cameron Clyne says: “The downgrade of Clydesdale Bank’s credit rating is disappointing, given the restructure of the UK operations announced in 2012 is driving significant improvements in the business and NAB’s support for Clydesdale Bank is unchanged.

”Clydesdale has a smaller and stronger balance sheet following the transfer of the vast majority of its commercial real estate portfolio to National Australia Bank Limited in October 2012, materially improving Clydesdale Bank’s risk profile. There has also been significant improvement in the funding, liquidity and capital position of the business with Clydesdale Bank loans more than 90 per cent deposit funded.”

Trinity Financial Group product and communications manager Aaron Strutt says: “Hopefully this will not impact Clydesdale’s mortgage rates, as has been the case with other banks which have been downgraded recently.”