NAB silent on UK bank merger plan

The NAB gets about 41 percent of its profits from its businesses outside Australia

By CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- Australia's biggest bank, National Australia Bank, continued its silence Monday on rumors it was looking at a $50 billion merger with UK-based Abbey National.

A spokesman for the bank told CNN no announcements were pending, and the bank did not comment on market speculation.

The NAB is thought to be looking at a merger offer to Abbey National if a $25 billion hostile bid for Abbey from another British bank, Lloyds TSB, is rejected by the British government.

The U.K.'s Competition Commission is due to report on the Lloyds bid in London Tuesday. U.K. media reports suggest the commission will recommend that the bid be blocked.

That would clear the way for the NAB to formalize its offer to Abbey National. If accepted, it would create Australia's largest listed company with a market capitalization of almost $50 billion.

Dual-listed company structure

COUNTRY PROFILE At a glance: Australia Provided by CountryWatch.com    CNN.com Asia More news from our Asia edition

The merger proposal would involve a dual-listed company, the same formula used recently by resources companies BHP and Billiton, and before that by Rio Tinto and CRA.

Abbey National and the NAB are of equal size, with respective market capitalizations of $24.4 billion and $24.7 billion.

Abbey National made a net profit of just under $2 billion last year, while the NAB made about $1.6 billion.

The NAB gets about 41 percent of its profits from its businesses outside Australia, with the biggest share of that coming from its U.K operations.

It already owns the Yorkshire Bank and Glasgow-based Clydesdale Bank, plus two banks in Ireland.

NAB chief executive Frank Cicutto has been keen to buy more financial assets in the U.K., either in the shape of a bank or building society.

Bank raised funds from U.S. sale

The bank has enough cash for an acquisition, following its sale of U.S.-based Michigan National Corp to ABN Amro last November for about $2.7 billion.

However, the U.S. has been less of a happy hunting ground for the NAB.

Last week, Cicutto was forced to announce a $450 million writedown of its U.S. subsidiary HomeSide Lending, prompting a 5 percent fall in the bank's share price.

HomeSide, which the NAB bought in February 1998 for $1.2 billion, is among the top 10 mortgage servicing organizations in the U.S.

Cicutto blamed the need for the provision on what he called the "extraordinary circumstances" and "turbulent environment" in the U.S. mortgage market, where interest rates have been cut six times in the past six months.

NAB shares were down 15 cents or about half a percent to A$31.55 in early afternoon trading Monday.