Some wild trading in National Australian Bank shares yesterday's as shareholders met in Perth and heard warnings about the continuing impact of the volatile markets.
The shares traded through a $2 range yesterday as they peaked at $33.90 and bottomed at $31.95. They ended up 2c at $32.80 at the end of the day.
The shares have lost substantial amount in recent weeks, falling from a high last November of $44.84 to a low of $30.34 last month.
Driving the fall have been fears about the purchase of the Great Western Bank in the US Midwest in late November, the subprime caused credit squeeze on bank margins and business levels, and a general unhappiness with leveraged companies (which is the stock in trade for banks and their highly geared and riskier balance sheets).
Yesterday shareholders received little in the way of relief from these factors.
Chairman Michael Chaney told the meeting that stresses from the US subprime market will last longer than previously anticipated.
He told the bank's annual general meeting that the cost of borrowing on wholesale markets has worsened in recent weeks, adding to the pressure that forced banks to raise their mortgage rates last month independently of the Reserve Bank.
He said it is "widely expected that the US subprime fallout still has some way to go and will continue to have an indirect impact on our economy and customers.
"We saw that recently when Australian banks were forced to increase their variable interest rates on home loans.
"In Australia we are faced with two factors exerting pressure on interest rates: The Reserve Bank's need to raise the official rate, as it did this week, in order to counter demonstrate inflationary pressures; and the higher rates being demanded by lenders in domestic and international money markets.
"The latter pressures have, if anything increased over recent weeks.
"These issues require strong focus and attention within all financial institutions. We need to remain alert to the negative flow-on effects that may continue to ripple through financial markets around the world," he told the meeting.
Tens of billions of dollars in failing "subprime" loans in the US have caused investors to re-assess the risk of buying securities backed by mortgages. Australian banks have been free of those problems, but have been caught up in the impact of the credit freeze and squeeze that has been boosting the cost of money since last August.
This has made it more expensive for banks to "securitise" their mortgages by bundling them together and selling them, thereby raising new capital with which to relend to customers on new mortgages or other loans.
Commonwealth Bank Wednesday increased its home loan rates by 0.3% and Westpac and St George went 0.25% higher yesterday after the 0.25% increase by the Reserve Bank on Tuesday.
NAB has not yet raised its rates in response to the RBA's action, though it is expected to do so within days.
Mr Chaney said NAB was well provisioned for the risk of a US recession, even if the downturn matched that in the '80s.
"We're very confident that we're adequately covered for such circumstances."
Mr Chaney said "it is important that, at the same time, we continue to evaluate opportunities that can help deliver long term growth.
"Our recent announcement of the acquisition of the Great Western Bank in South Dakota is an example of that thinking.
"Great Western is a strong, well run bank with a robust history of expansion and sound financial performance. Importantly in the current market, it is entirely funded by customer deposits.
"The planned purchase will enable NAB to establish a position in the USA agri market with growth driven by the demand for beef and grain from emerging economies as well as rising demand for bio-fuels.
"This is against a backdrop of fifty per cent growth in agricultural trade in the last five years
"Our strategy extends beyond leveraging NAB's agribusiness skills in the United States.
"Great Western Bank is also active in the commercial lending, wealth management distribution and insurance sectors – and these are all areas where NAB has a strong track record.
"Of course, in the scheme of things, the Great Western acquisition is a small one and the main game for the bank continues to be in expanding its existing organisations in Australia, the UK and New Zealand," he said.
CEO John Stewart told the meeting the bank is maintaining its profit outlook despite continuing market volatility.
He said, echoing his chairman, that world markets were very volatile and would remain that way for some time.
"This uncertainty, started by the sub-prime issues in the United States, is likely to be longer lasting and more widespread than we all thought last year," Mr Stewart said.
"The outlook is further complicated by the potential for the United States to go into recession.
"Against this background, National Australia Bank is faring well although we are far from complacent.
"Despite these challenging times, I can reaffirm the guidance given previously to the market."
Mr Stewart said the bank planned "strong revenue growth" in its chosen segments.
Mr Stewart also reiterated previous guidance to restraining expense growth.
"Annual operating expense growth will remain within inflation to 2010, and over the next three years, we expect growth in shareholder value will be driven by our existing businesses delivering on our strategies to achieve these goals," he told shareholders at the bank's annual general meeting in Perth.
