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Clydesdale hits IPO snag as new era starts

British challenger bank Clydesdale is turning out to be a tougher sell than anticipated for CEO David Duffy, potentially casting a shadow over the UK’s other planned challenger bank IPOs.

Clydesdale was due to start trading on the London Stock Exchange Tuesday, alongside a demerger with former parent National Australia Bank (NAB). Institutional investors are being offered 25% of the bank, but NAB has now said it may opt not to go ahead with the listing, or only do part of it, and instead retain part of Clydesdale.

The demerger still becomes effective on Tuesday, after NAB shareholders approved the move last week. However, the first day of trading is being delayed until Wednesday, after a request from one of the ratings agencies for more information on Clydesdale’s secured funding, making up 13% of the bank’s total. That could mean a downgrade of its deposit rating, the bank said.

The IPO “is expected to proceed” according to announcement by the bank, citing Duffy. The CEO said: “Whilst we have a very short delay in launching the IPO it is very important that we commence trading as an independent company in the best possible way. We have made excellent progress with the transaction and we have very strong interest in our story.”

The IPO is over-subscribed, at 180p per share, according to NAB. But that is at the lower end of a range between 175p and 235p, which would have valued the bank between £1.54 billion and £2.07 billion. Duffy told Euromoney late last year, he thought Clydesdale’s value at IPO would be between £2 billion and £2.5 billion. There was appetite among Australian investors for diversification, as the Australia economy slows and the UK economy speeds up, according to Duffy.

The UK has seen a flurry of IPOs of small, so-called challenger banks in recent years, with Metro Bank and RBS spin-off Williams & Glynn expected to follow Clydesdale (whose heartlands are in northern Britain). Such banks have traditional struggled to make gains on the handful of big banks that dominate UK banking.

But Duffy said Clydesdale, which is traditionally strongest in northern England offers “an opportunity to change the face of UK banking” as bigger banks are harder-hit by new regulatory burdens. Independence from NAB will help Clydesdale focus on growing its franchise, Duffy told Euromoney.

Uncertainty over the ownership of the bank, and being part of a group based "many thousands of miles away" has, according to him, “led to lack of management focus and lack of investment". He hopes to replicate his success in improving results at the bank he used to run - Allied Irish Banks (which is also planning an IPO) – including in in digital banking.

Longer term, Duffy told Euromoney could be both an acquirer or target, as consolidation gets under way in the challenger sector. "In a few years’ time I doubt the market will look as it does today," he said, outlining which regions and businesses he could target in an acquisition – and where acquirers of Clydesdale could come from.

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