The credit rating's assessment could result in the bank's short and/or long-term deposit rating being downgraded or its rating being placed on credit watch with negative implications, NAB said in a statement. However, the deposit rating only relates to 13 per cent of CYBG's total funding.
Management at NAB also stressed that even if CYBG’s deposit rating is downgraded it does not expect this to have “any material impact on its ability to raise funding, the overall cost of funding, or the financial outlook” of CYBG.
Fund manager at Miton group Eric Moore reckons the delay can only be seen as a negative. “I can’t imagine many people are deciding they want to buy more,” he said.
CYBG will begin trading at 180p a share, giving the group a market capitalisation of roughly £1.6bn. This is towards the lower end of the 175p to 235p a share range initially set by NAB towards the end of January. This means the shares will trade at around 0.58 times the group’s net tangible assets – a discount to competitors such as Lloyds Banking (LLOY) and Virgin Money (VM.).
However, CYBG has a lower return on equity, at just 5 per cent. Clydesdale and Yorkshire chief executive David Duffy is targeting double-digit return on equity in the next five years. As well as reducing the bank’s cost-to-income ratio, the group has been growing its mortgage business to help boost returns.
“To fund that intensive growth in mortgages, they need to also grow their deposits commensurately,” Mr Moore said. If CYBG’s deposit rating is downgraded it could impact the group’s funding structure, despite accounting for just 13 per cent, he said. “You’re funding structure is as strong as your weakest link,” Mr Moore added.
CYBG, which includes Clydesdale Bank and Yorkshire Bank, is being sold by NAB as part of its exit from the UK. Three-quarters of the shares are being kept by NAB shareholders, while the remaining quarter will be sold to institutional investors via the offering. The IPO is multiple times covered by international investors and Australian investors, according to NAB.
It is not yet known when the credit rating agency will make its decision.
