National Australia Bank unveils £625m sale of a parcel of loans in UK CRE portfolio

Marking step in disposing capital-hungry assets.

National Australia Bank has announced the sale of a parcel of loans in its UK Commercial Real Estate Portfolio, with the total balance sold £625mn.

According to a research note from Nomura, this equates to about a fifth of the total UK CRE portfolio, which has now reduced to £2.38bn as of June 2014.

While the immediate impact on NAB's group financials is relatively small, this is an important step in the process of disposing its capital-hungry assets in the UK.

And although this is clearly a positive development Nomura noted that the valuation upside from disposing of the entire CRE portfolio (at similar terms to this transaction) only provides ~2% upside to Nomura's fundamental evaluation.

Here's more from Nomura:

In our view the key upside to NAB's valuation is frmo a full exit from the UK (including reducing exposure to conduct-related issues) as well as from improved performance in its domestic franchise.

In that regard while we continue to see fundamental value at current levels, we remain cautious on NAB's ability to outperform in the short term. We retain our Neutral recommendation.

This transaction will result in a capital release of £127mn (approximately A$229mn), or translating into a benefit of ~6bps for its group core Tier 1 ratio.

The sale will also result in a small gain on book value for NAB, in its 2H14 accounts.

On a pro-forma basis, NAB’s CET1 ratio would increase to ~8.7%, placing it close to CBA and WBC’s capital positions, and ahead of ANZ at 8.3%.