TEXT-Fitch affirms Clydesdale Bank ratings

July 19 - Fitch Ratings has affirmed Clydesdale Bank PLC's (CB)
Long-term Issuer Default Rating (IDR) at 'A' and Viability Rating (VR) at 'bbb'.
The Outlook for the Long-term IDR is Stable. A full list of rating actions is at
the end of this comment.

CB's IDRs and Support Rating are driven by an extremely high expectation that it
will be supported by National Australia Bank Limited (NAB; 'AA-'/Stable), if
needed. CB's Long-term IDR is two notches lower than NAB's. Although Fitch does
not consider CB to be a strategically important subsidiary of NAB, it is 100%
owned by NAB (which sets management principles and policies). A default of CB
would represent a high reputational risk for NAB and NAB has a strong track
record of providing capital and funding to CB, as necessary. CB is currently
being restructured and a sizeable portfolio of impaired loans will be
transferred to NAB. Fitch estimates that CB will represent 8%-9% of NAB's
consolidated assets post-restructure.

Fitch views positively NAB's revised strategy to focus on retail and SME lending
and believes it will improve CB's risk profile. Fitch also thinks that there is
some potential upside to CB's VR following the completion of the transfer of
CB's GBP6bn underperforming commercial real estate (CRE) portfolio to NAB in
late 2012. Reliance on NAB for funding should reduce following the CRE portfolio
transfer since the proceeds will be used to repay some intragroup funding. The
bank's overall impaired loans ratio (end-H112: 2.7%) is expected to improve
significantly following the CRE portfolio transfer.

CB posted a GBP260m operating loss in H112 following a spike in impairment
charges driven by a significant deterioration in its CRE portfolio. A further
GBP120m non-operating Payment Protection Insurance provisions were offset by a
GBP130m one-off pension reform benefit. Asset quality in CB's mortgage book
remains solid and the non-property corporate lending book is well diversified by
sector and name but performance remains vulnerable to the weak UK economic
environment. CB's current funding and capital position is satisfactory.
Liquidity is solid with significant liquid assets relative to its capital market
funding.

CB's IDRs are likely to move in line with NAB's. While NAB does not plan to sell
CB, if a sale or further scaling back of operations were announced at some
point, CB's IDRs could be downgraded, although any downside risk would be
limited to the level of CB's VR. CB's VR is sensitive to the completion of the
CRE portfolio transfer, which could potentially result in an upgrade. The VR may
not be upgraded or could be downgraded if there was a significant deterioration
in asset quality in CB's remaining lending, particularly to SMEs, or if there
was a substantial weakening of performance as a result of the restructuring,
which is not Fitch's current expectation.

The rating actions are as follows:

Clydesdale Bank PLC
Long-term IDR: affirmed at 'A'; Stable Outlook
Short-term IDR: affirmed at 'F1'
Viability Rating: affirmed at 'bbb'
Support Rating: affirmed at '1'