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Fitch affirms Clydesdale Bank’s ratings

Fitch Ratings has affirmed Clydesdale Bank’s long-term issuer default rating at A, short-term IDR at F1 and support rating at 1, and removed it from rating watch negative.

The outlook for the long-term IDR is now stable.

The rating actions follow the announcement by the bank’s parent, National Australia Bank, that it has completed its UK Banking strategic review and it will maintain its UK presence.

While NAB does not plan to sell the bank, if a sale or further scaling back of operations was announced at some point, the bank’s IDRs could be downgraded says Fitch, although any downside risk would be limited to the bank’s viability rating, which is currently ’bbb’ with some upside potential related to the anticipated transfer of the bank’s commercial real estate portfolio.

NAB’s revised strategy is to focus on retail and SME lending in Scotland and the north of England and to transfer the bank’s £6bn CRE portfolio to the group in late 2012 at the earliest where it will be run off. The bank’s remaining operations will be restructured in order to improve cost efficiency by closing distribution outlets, staff reductions, and technological and procedural efficiencies.

Fitch believes the revised strategy is likely to improve the bank’s risk profile in the longer term as it focuses on its core businesses and regions. However, short-term risks still exist given the weak UK economic environment and there are operational complexities related to the restructuring process.

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