Clydesdale’s Full Year Results And The Hidden ‘Hidden Swap’ Bill

Daniel Hall

National Australia Bank (NAB), parent company of Clydesdale Bank PLC (Clydesdale), which operates under the Clydesdale Bank and Yorkshire Bank brands, announced their Full Year End results last week for the Year End 30 September 2014.

Mis-Selling By The UK Bank Drives Exit

The headline figure was that Net Profits fell 1.1% to A$5.3 billion (£3.9 billion), which does not represent a too bad performance for the year; however, that performance could have been much better were it not for an issue called “Contingent Liabilities” or mis-selling to you and me. Mis-selling, that is, that has primarily been caused by the UK bank; hence NABs declared “absolute priority” to exit the UK market place with Andrew Thorburn, Chief Executive reporting;

“While our Australia and New Zealand franchises are in good shape, it is disappointing to record a full year results that included $1.5bn after tax in UK conduct provisions and other impairments.”

PPI Provisions Increase To Nearly £1billion

So let’s take a little closer look at these contingent liabilities starting with PPI provisions. Again, according to the Full Year Accounts, a provision of £515 million was held. However, on 9th October 2014 (a matter of days later) a further provision was announced of £420 million for “UK conduct charges.” So that’s £935 million provisioned for PPI to date.

Interest Rate Hedging Products Provision Increased Twelvefold

Turning to interest rate hedging products (IRHPs) – which for Clydesdale includes Tailored Business Loans (TBLs), a similar picture emerges. Year End provisions stood at £362 million, with a further £250 million announced days later, bringing the total to £612 million. Not an insignificant sum, especially when this provision was only £49 million a year ago, or a 12x increase in a year.

So that’s over £1.5 billion provisioned across PPI and IRHPs/TBLs to date. A significant sum.

So given the intended sale of Clydesdale and Yorkshire Bank, are these current provisions enough?

Our specialists at All Square have run various scenarios trying to calculate the size of this total potential mis-selling bill. Just looking at IRHP/TBL provisions, All Square estimates the required size to be in the region of £1-1.5 billion. Those figures don’t include the ‘break costs,’ which is a cost that will be absorbed by the bank, or any Consequential Losses if relevant to the claim.

Complaints To Increase As Mis-Selling Comes To Light

With just over 550 complaints received by Clydesdale relating to Fixed Rate Tailored Business Loans over 13 years (as of June 2014), I would expect the number of complaints to increase over the coming months as awareness of the mis-selling of ‘hidden swaps’ or Tailored Business Loans comes to light.

Watch this ‘hidden’ space very closely.

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