The National Australia Bank (NAB) shocked the market this morning revealing a massive $5.5 billion rights issue to build its capital levels, the proposed demerger and floating of its troubled UK banking operations, a higher cash profit, a higher dividend and a change of chairman.
The bank this morning asked the ASX to halt trading in its shares till next Tuesday to allow the huge issue which will depend heavily on the support of big shareholders, to be marketed and locked away.
As well, former Treasury boss, Ken Henry has been appointed the chairman of the bank, to succeed Michael Chaney.
The capital raising will provide a capital buffer of 1 percentage point above the midpoint of its common equity tier 1 capital target to absorb potential regulatory changes.
The issue is in contrast to the moves by the ANZ and Westpac (WBC) to run discounted dividend reinvestment plans of 1.5% – these were announced in their interim profit statements earlier this week.
The fact that the NAB is going for such a huge rights issue indicates the board sees the need for a partial recapitalisation of the bank to try and meet pressure from regulators for higher capital levels from next year, and to meet demand from UK regulators for a capital injection into the troubled Clydesdale Bank ahead of any demerger and float.
The NAB said the regulators had said the Clydesdale needed more than $3 billion in new capital – a figure the bank realised it would have to ask shareholders for and couldn’t meet through a DRP.
NAB it will look to demerge 70% to 80% of Clydesdale to NAB shareholders and the remaining 20% to 30% will be sold through an initial public offering to institutional investors.
It said United Kingdom banking regulators had said that in order to demerge the business, NAB would have to provide up to capital support to of up to 1.7 billion pounds to shield the bank against costs from mis-sold financial products.
“In relation to exiting our UK Banking business, we have been examining a broad range of options including those provided by public markets,” chief executive Andrew Thorburn said in this morning’s statement.
"It is a priority to exit this business, and we are today announcing our intention to pursue a demerger and IPO of the UK Banking business."
"A strong balance sheet has always been a priority at NAB which is why we are today announcing that we will be raising $5.5 billion of capital through a rights issue, as described below. The capital raising facilitates our proposed exit from the UK Banking business and positions us ahead of anticipated regulatory changes”
At the same time the NAB joined Westpac and the CBA in reporting a weak result. The NAB said that excluding the UK bank, cash earnings rose 0.3% in the half year – which is virtually no change.
Significantly there was no change in the interim dividend 99 cents a share. That tells us the NAB’s financial position is under pressure as it moves to tidy up the bank and return it to its Australian roots.
A year ago the interim was boosted by 6 cents a share.
Video – NAB H1 profit result overshadowed by $5.5b capital raising
