The National Australia Bank headquarters in Melbourne. The NAB plans to hand over as much as 80% of its UK businesses, Yorkshire Bank and Clydesdale Bank, to shareholders and sell the remainder through an initial public offering by the end of 2015.

Bloomberg/Sydney

National Australia Bank (NAB) said it plans to raise A$5.5bn ($4.4bn) in the country’s biggest rights offer to bolster capital and cover the cost of potential misconduct fines at the UK unit it is exiting.
The company will offer 194mn new shares, equal to about 8% of issued capital, at A$28.50 each, 19% less than Wednesday’s closing price.
The lender plans to hand over as much as 80% of its UK businesses, Yorkshire Bank and Clydesdale Bank, to shareholders and sell the remainder through an initial public offering by the end of 2015, it said in a statement on Thursday.
The rights offer, the biggest for the Asia-Pacific region since 2010, takes the amount of equity raising announced by Australia’s biggest lenders this week to about A$8bn.
The banks are girding themselves against the possibility of fresh regulations demanding higher capital buffers.
“National Australia is biting the bullet and getting ahead of the other banks in sprucing up its capital ratio,” said Angus Gluskie, managing director at White Funds Management Pty in Sydney, who oversees about $550mn including National Australia shares. “It’s making progress on two fronts: its UK exit and bolstering capital.”
National Australia shares have been halted from trading until May 12. Of its largest competitors, Westpac Banking Corp lost 0.3% in Sydney on Thursday. Australia & New Zealand Banking Group dropped 0.6% and Commonwealth Bank of Australia gained 0.2%.
Creating a standalone UK bank will add another independent challenger to Britain’s four largest lenders, which together control about 80% of the market.
National Australia said the unit will have about £38.9bn ($59.3bn) of assets, making it the largest publicly traded lender behind HSBC Holdings, Barclays, Royal Bank of Scotland Group and Lloyds Banking Group.
The current biggest publicly traded challenger to the big four by assets, TSB Banking Group, with about £27.4bn, is being sold to Spain’s Banco Sabadell for £1.7bn.
“We’re pretty different from the rest of the challengers,” Debbie Crosbie, acting chief executive officer of Clydesdale and Yorkshire banks, said in an interview. “We offer absolutely everything that the big banks do, and I think we offer it much better. We are already largely standalone.”
To spin off the UK operation, Britain’s Prudential Regulation Authority has required National Australia to inject £1.7bn in capital to cover potential compensation for customers sold payment protection insurance they didn’t want or need, as well as wrongly sold interest-rate hedging products on small-business loans, the bank said in the statement.
National Australia has set aside £806mn to cover PPI, which across the industry is Britain’s costliest banking scandal.
Lloyds has reserved more than £12bn, the most of any UK lender.
“This is about providing additional capital support, and that is a safety net,” Crosbie said. “It’s an important part of creating a strong standalone bank.”
National Australia said it’s targeting a common equity Tier 1 ratio, a measure of financial strength, of 13% for the UK business. The ratio was 11.9% at the end of March.
For National Australia as a whole, the pro-forma common- equity Tier 1 ratio was about 10% including the impact of the capital raising and the UK separation, as at March 31, it said.
Its capital raising is expected to reduce pro-forma cash earnings per share for the six months to March 31 by about 4.5%, it said. “This is obviously a very significant raising and clearly we believe we would rather go and take one step,” CEO Andrew Thorburn told reporters in Sydney. “Going to the capital markets, given the state they are in now, strong and open, we think this is really the right thing to do.”