In a media statement issued on 10 August 2010, Clydesdale and Yorkshire Banks' Chief Executive Officer, Lynne Peacock said: "We continue to follow a very steady and prudent course....our strategic direction is unchanged. Firmly focused on growing our existing business, we remain committed to supporting our existing customers and are on track to deliver £10 billion of gross new lending by October next year."
National Australia Bank Group, owner of Clydesdale and Yorkshire Banks which maintain their own respective identities, was not giving much away in the Trading Update for their third quarter ending 30 June 2010. No revenue or profit figures were released for either subsidiary and the Update stuck to the somewhat bland and cautious, bullet point type summary of their current trading position.
The £10 billion gross new lending mentioned above, is a two year target and includes advances to businesses and mortgage customers. Ms Peacock's statement that "credit demand remains subdued" is a most familiar one made by nearly all bank executives in the British market. The previous week, Mr Stephen Hester, RBS's Group CEO stated: "Like in all recessions, people are tending to save more and pay back money rather than borrow more." This saving tendency was echoed in Clydesdale's: "Deposit growth remains strong in a highly competitive market."
A muted statement reflecting the expectations of an Australian parent maybe? In May this year National Bank of Australia issued its figures for the first half-year ended March 2010 and along with the trading statistics there was an accompanying "Review of Group Operating Environment" which told shareholders:
"...The UK economy will require rebalancing with a shift away from consumer and public spending toward business investment and exports, thereby laying the basis for more sustainable economic growth in the future. The combination of competitiveness gains stemming from Sterling depreciation plus the likely retrenchment in public spending that lies ahead, should promote the required economic re-balancing. Addressing the UK's budget deficit, combined with the sluggish recovery in key Euro-zone export markets, will slow the pace of recovery. Consequently, economic growth should be less than 1% in 2010 and about 2% in 2011."
A couple of home truths there which our fearless politicians should have been telling the British public years ago, however we shall all be praying that these growth estimates are too conservative, if you'll excuse the pun.
Clydesdale and Yorkshire go on to state that the charge for bad and doubtful debts has improved on the prior corresponding period but give no figure of by how much.
The most interesting part of the Q3 Trading Update is also the one that causes most concern and appears to be a little at odds with the reduction in bad debts provision: "The ratio of 90+ days past due and Gross Impaired Assets to Gross Loans and Acceptances increased to 3.36% from 2.98%."
These figures don't sound much but it is a rise of 12.75 percent in a relatively short space of time. If one looks at their Q1 Trading Update reported on 19 February 2010, one learns that the ratio stood at 2.90 percent as at 31 December 2009 and at only 2.61 percent as at 30 September 2009. Therefore, in a space of nine months Clydesdale and Yorkshire has increased this 90+ days past due ratio by a rather large 28.7 percent
In the same vein, the Bank has found it necessary to increase the provision for bad debts from 1.4 percent at the end of March 2010 to 1.51 percent as at 30 June 2010.
These statements are simply presented as facts on the Q3 Trading Update but the reason the Bank found it necessary to increase the ratio and provisions in the earlier Q1 Trading Update was given as: "...driven predominantly by the commercial property portfolio." and it is more than likely that this is still the case
The Bank may take some cheer from recent developments in its Leeds and Manchester as its catchment areas in the commercial property market are showing a 10 percent rise on the same period last year. This includes the one million sq ft, £350 million Trinity shopping centre development in Leeds, mothballed in May 2009 because of the recession, which is to be re-started. Hopefully, at the very least, the worst is over in this business sector.
The Bank however must feel disappointed at these rises. Only last month their IFS Divisional Director, Colin Fyfe, conducted a survey titled "Business Confidence in the UK". The results were released through the Bank's Media Centre and showed that 47 percent of businesses interviewed, expected to grow during the next 12 months whilst only 14 percent expected contraction. A further four percent feared going out of business and the remainder expected levels to stay the same.
Clydesdale and Yorkshire Bank's survey found that the most positive expectations for growth were IT & Communications, 62 percent; very closely followed by Manufacturing and Transport & Travel, both 61 percent. The least confidant sectors were Health care, Education and Architecture, all about the 25 percent mark.
Regionally, companies in Scotland were most confidant of expanding over the next 12 months with 56 percent responding positively. Following not far behind came the North West, 51 percent, and London, 48 percent. Good news for the Bank, well represented in the first two areas and probably with sufficient presence in London to get their fair share. If all goes well, good news for those seeking job prospects, despite the latest unemployment figures.
The survey coincided with the launch of Clydesdale and Yorkshire's new business support initiative "Investing for Growth" and through their Media Centre, Colin Fyfe is quoted as saying: "While it won't be right for every business, Investing for Growth will provide businesses with investment finance to increase cash flow and ease debt commitments. This will help enable companies to invest cash back into their business."
Looking at the Clydesdale and Yorkshire Bank's figures, structure and services it offers the public, one sees a good, solid, prudent and traditional bank which seems to know and understand its client base and serves them well. Just the sort of bank Vince Cable might wish Sir John Vickers, recently appointed head of the Government's Commission on Banking to "find" more of.
It is though a model with limitations, which I am sure the Clydesdale and Yorkshire Bank would not deny. Those matters lying beyond its scope or comfort zone will be handled, possibly by the parent company or an affiliate, Barclays for example. It is a retail bank, not a bank of the "universal model" able to make good shortfalls in retail division with surpluses in investment or corporate divisions. If the regions in which it operates are in recession, it's very difficult for the bank to avoid rising impairment costs or to continue expanding and maintain healthy profits. For the average individual or small business, none of this will matter. If London wants to remain one of the pre-eminent finance centres in the world - this is not the model.