National Australia Bank weighs up options in Britain after sale of its US subsidiary

National Australia Bank (NAB) is limbering up to become a significant player in the British market and increasingly is being linked to the merger between Abbey National and Bank of Scotland.

Australia's most profitable bank, which owns National Irish Bank and Northern Bank in Ireland, certainly has plenty of cash to realise its ambitions in this regard following the sale of its US subsidiary, Michigan National for $2.75 billion (€3.3 billion). Chief executive, Mr Frank Cicutto, has indicated that some of these proceeds would be used to buy market share in Britain while it was also keeping an eye out for opportunities to expand in Australia.

Yesterday he confirmed that, in the short term, there would be more focus on Britain.

NAB already owns the Clydesdale and Yorkshire banks in the UK and is currently merging their operations. Mr Cicutto hinted earlier this year that one possibility would be to leverage its UK assets through alliances, mergers or acquisitions or by divesting assets that did not meet its objectives.

One proposal being considered is for Bank of Scotland to give NAB its 55 per cent stake in Bank of Western Australia in return for a stake in Yorkshire and Clydesdale. This would give NAB crucial access to the London market through a dual listing. Many of the technicalities involved in such a move have already been broached with the regulators.

Another option would be for NAB to use MLC, the fund management business it acquired earlier this year to expand further into the private banking market.

Mr Cicutto has revealed that NAB has set itself a deadline of March 2001 to find a suitable acquisition. Otherwise it will consider strategies to return some of its excess capital to shareholders.

One of the primary attractions for NAB in the UK, and particularly if the asset swap with Bank of Scotland is accepted, is that it allows the bank to have its assets listed on the London Stock Exchange and traded in a stronger currency than the Australian dollar.

Given this focus, it is reasonable to assume that NAB has little appetite for expanding its presence in the Republic at the moment given the weakness of the euro.

Most analysts believe that, despite the fact that NAB has failed to achieve a 15 per cent share of the Irish market, it will be some time before Mr Cicutto turns his attention to the Irish banks.

National Irish Bank has had a difficult time in recent years and is still being investigated for its role in the unauthorised sale of an offshore insurance product. Its profits declined by 40 per cent in the past financial year to £9.9 million with its DIRT settlement with the Revenue Commissioners and restructuring costs eating into the bottom line.

As long as investigations continue, no prospective buyer would be able to conduct due diligence which suggests any decision to put it on the market is at least six months to a year away.

If it is sold it seems certain it will come on the market together with Northern Bank. In the past year, NAB has focused on integrating the two businesses.

Northern Bank has around 40 per cent of the Northern Irish banking market and is very profitable. It would certainly attract interest from prospective buyers.

Top of that list is expected to be Bank of Ireland. It has made no secret of its desire to expand its Northern Irish operations and Northern Bank would meet that requirement.

Another possibility is that Bank of Ireland could join with Irish Life & Permanent to make a joint bid for the business, with Irish Life & Permanent ending up with National Irish Bank's network. Both banks made a similar bid for Ulster Bank last year when National Westminster put it on the market.

The market has changed since then though. Irish Life & Permanent is now the sole bidder to acquire the TSB and may not have the appetite to expand further in the next 12 months.