("Aussie Bank Cuts 1,400 UK Jobs," at 0140 GMT, misstated the value of the impairment charge in the 12th paragraph. The correct version follows:)
SYDNEY--One of Australia's biggest lenders said it will slash 1,400 jobs from its struggling U.K. operations in a further blow to Europe's third-biggest economy which has just tipped back into recession.
National Australia Bank Ltd. (NAB.AU) on Monday cited a deteriorating U.K. economy as it announced writedowns of GBP456 million ($742.1 million) at its Clydesdale and Yorkshire operations.
The job cuts and writedowns are part of a U.K. strategic review by the Australian lender, which has resulted in a narrowing of its focus onto retail and small-business lending in Scotland and Northern England. Most of its British commercial-real-estate portfolio will be transferred to National Australia Bank's balance sheet, and no more such loans will be written, the company said.
Chief Executive Cameron Clyne said there has been "a significant downgrade" in the growth prospects of the U.K. economy in the last six months.
"In addition, the commercial-property market, which had previously seen signs of recovery, has recently experienced a 'double dip' as the recovery stalls and other banks accelerate the reduction in their commercial-real-estate exposures," Mr, Clyne added.
The U.K. economy contracted by 0.2% in the first quarter of 2012, official data showed last week, as European governments struggle to maintain growth while trying to trim massive budget deficits inflated by bank bailouts during the global financial crisis. That followed a 0.3% contraction in the final quarter of 2011.
Two consecutive quarters of contraction is the standard definition of a technical recession.
Royal Bank of Scotland Group PLC (RBS) Chief Executive Stephen Hester warned last week that regulatory changes combined with the gloomy U.K. economic outlook could continue to weigh on the government-controlled bank's share price.
"Our shareholders, indeed all bank shareholders, will see value recover less well than hoped for," Hester said.
Acquired by Australia's fourth-largest lender by market value over two decades ago, the Clydesdale and Yorkshire banks have become a blight on its earnings.
National Australia Bank has said its U.K. operations need more scale to compete in the mature British banking market, and it has been mulling whether to sell the two banks or beef up its British operations with acquisitions. It was in the running to acquire over 600 Lloyds branches last year but didn't submit a formal bid on price concerns.
Melbourne-based National Australia Bank said it will incur GBP195 million of restructuring costs, write off GBP141 million of goodwill from Clydesdale Bank, and book an additional GBP120 million impairment charge due to increased protection insurance claims.
It said the moves, which include a reduction of over 1,400 full-time positions by the 2015 financial year, are expected to deliver annual cost savings of about GBP74 million.
James Ellis, a banking analyst at Credit Suisse, said the outcome of the review isn't highly surprising and "in our view quite sensible and pragmatic".
Ellis said the bank has created a pathway to a more sustainable U.K. exposure and possible medium-term divestment, although he noted that it's still holding large risk exposures without additional group provisions.
The bank on Monday reported an unaudited net profit for the six months to March 31 of 2.05 billion Australian dollars ($2.14 billion), which it said is 15.6% below the previous corresponding period. Cash earnings--which smooth out one-off items--rose 5.7% to A$2.82 billion, it said.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; [email protected]