Funder's strategic review to disturb the market?

Funder's strategic review to disturb the market?



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A number of bridging lenders are in potential jeopardy as a result of a strategic review currently underway at Clydesdale Bank, which may have a knock-on effect on those lenders who have credit lines through the bank.

Clydesdale Bank currently provides, and has provided, funding lines to some of the lenders in the sector, including Cheval Bridging Finance, Masthaven Bridging Finance and Tiuta Plc.

Despite reporting strong profits for the final quarter of 2011, National Australia Bank (NAB), the parent company of Clydesdale and Yorkshire Banks, announced a strategic review which will look into repositioning them and improving returns.

B&C heard from Steven Nicholas, CEO of Tiuta Plc, who stated that the strategic review would have no impact on Tiuta. Steven said: “The bank did provide us with some funding in previous years but we do not have a current credit line with Clydesdale, therefore we do not need to review the situation. We have a range of funding lines and as this situation does not impact upon us, it is business as usual.”

B&C learnt that Tiuta Plc stopped receiving funds from Clydesdale officially in November 2011.

The BBC reported last month that “the Australian owner of the Clydesdale Bank and Yorkshire Bank is looking for options to sell or radically reform the businesses.”

Cameron Clyne, Group Chief Executive at National Australia Bank, stated: “Given our view that recovery is now a longer term prospect, NAB has commenced a strategic review.”

He added: “It is clear that the UK economy is likely to experience a much longer period of subdued growth with the on-going sovereign debt crisis in the Euro-zone and the continuing austerity program by the UK government.

The Chief Executive of Clydesdale Bank, David Thorburn, said the review would mean making ‘tough decisions’. He added: "The time is right for us to re-examine our business given the recent reversal in the economic recovery. Getting the right business mix and structure is vital and the review will shape that.”

Cameron Clyne concluded: "Given our view that recovery is now a longer term prospect, NAB has commenced a strategic review, and will work with UK management to appropriately reposition its business mix and structure for the changed economic environment and improve returns. We will inform the market of the outcomes of the review, which we expect to occur by the time of our interim result in May 2012."

Following “increasingly difficult trading conditions” the potential results of the review could include a sale of the banks by NAB or significant cutbacks in its operations.

B&C heard from Ian Sutherland, Co-Managing Director of Montello Bridging Finance, about the news who believes that, “The lenders with credit lines with Clydesdale Bank will no doubt be worried about this source of capital drying up. I'm sure they will have taken the necessary mitigating measures to address this. I don't see these bridging companies not being able to overcome any shortfalls.

“Existing lenders with good track records and who have already been able to secure credit lines are better placed in the market as a consequence. Also, it would seem incongruous, if Clydesdale was taken over, that any existing profitable credit lines would be wound up.”

Ian added: “Capital adequacy requirements and regulatory restrictions affecting banks and how much they can lend have been in the headlines for quite some time now. Quite a few lenders will have probably shored up their lines of capital either through private financing or alternative funding lines. Some of the larger banks are talking terms for bridging credit lines. However, these terms might be prohibitive for some given the size of the facilities and non-utilisation costs.”

B&C contacted Clydesdale Bank for comment and received the following statement from a bank spokesperson:

"The UK management team is continuing to work through the strategic review to appropriately reposition our business mix and structure for the changed economic environment and to improve returns. We will inform the market on the outcomes of the review by the time of our interim result in May."

The interim results are due out in May 2012, and the news will no doubt make a number of lenders keep a close eye on how this develops, as this type of announcement is often seen as a prelude to a sale or significant cuts.

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