The annual result from the National Australia Bank (NAB) came in as forecast, lower because of $1.3 billion in higher write-offs in the UK banking operation and some local asset write downs, all of which the bank told us about in updated guidance earlier this month.
And, as forecast by selective leaks to business media this morning, were the plans by management to try and exit the underperforming UK banking business (again, it is an old story, but this time the possibility looks better for a successful departure).
The NAB said this morning that cash earnings fell 9.8% to $5.18 billion in the year to September, in line with guidance provided earlier this month.
Provisions relating to the misselling of income protection insurance products in the Clydesdale and Yorkshire bank were a key reason for the decline.
Chief executive Andrew Thorburn described the result as “disappointing”, as you would expect.
But seeing its first result, it doesn’t matter, he can sell the fall as the first step in cleaning up the mess left behind by previous managements.
Mr Thorburn signalled it was more actively examining options for offloading Clydesdale, including a float.
"Our clear focus is on our Australian and New Zealand franchises and providing a better customer experience, and as a result we need greater urgency dealing [with] our remaining low-returning assets," Mr Thorburn said.
"In relation to exiting UK Banking, this means we are now examining a broader range of options including those provided by public markets."
NAB YTD – NAB floats UK spinoff
Over the year to September, NAB’s revenue rose 1.9% thanks to some growth in its lending book.
However, expenses jumped 21% because of the provisions it was forced to make for the misconduct in the UK, software impairment and tax rulings – around $1.3 billion in total before tax.
Profit in its Australian banking business was flat over the year at $4.9 billion, not a good look actually given that there has been a home lending boom going on.
NAB said credit quality had continued to improve, allowing it to make lower provisions for bad debts.
As forecast earlier this month, NAB will pay a fully-franked final dividend of 99c a share, payable on the December 16.
That means a small rise of 5 cents a share for the year to a total of $1.98 a share, a decision by management and the board to try and put a floor under the bank’s shares, a move which has worked in the past three weeks.
The bank also said it intends to raise $1.6 billion in share capital via a discounted dividend reinvestment plan and has also arranged the underwriting of the issuance of an additional $800m of NAB shares over and above the expected take up under the DRP. NAB says the move will boost top tier capital by more than 40 basis points.
