NAB’s big announcements on Monday, especially the cut to the interim dividend and the decision to raise new capital has largely gone down well.
National Australia Bank also said it would raise $3.5 billion in new equity after interim cash profit fell 52% to $1.44 billion, from the same half last year.
The result included a $1.61 billion credit impairment charge, which more than doubled as a result of the expected hit from COVID-19 (0ver $800 million from that alone added to the bank’s forward reserves). The interim dividend was slashed 60% to 30 cents a share.
Moody’s rating agency vice president, Frank Mirenzi, said the capital raising was a good move by NAB.
“National Australia Bank Limited’s announced $3.5 billion capital raising will significantly strengthen its capital base and boost its buffers against potential credit losses and rising capital requirements amid the broad economic downturn,” he told clients.
“Furthermore, the bank’s decision to increase its collective provisions to $4.4 billion underlines its balance sheet strength to combat the uncertainty ahead.”
One or two market analysts wondered if the raising was enough – UBS analyst Jonathan Mott said this increase “appears slightly light” and further top-ups may be needed.
But Bell Potter analyst TS Lim was quoted by Nine/Fairfax as saying NAB’s capital raising could be its “final deck clearing.”
Mr. Lim said he thought the bank’s capital position after the raising would be “more than sufficient” to also cover it from any fines it may face over past breaches of anti-money laundering laws, an ongoing issue it first disclosed in 2017.
The NAB’s move saw the shares of Westpac and ANZ come under early pressure in a sign investors expect both to follow the NAB down the fundraising route.
Westpac shares fell 5% early on and closed down 4.3% at $14.66. ANZ shares lost 4% in early trading and ended the day at $15.65, down 2.3%.
Commonwealth Bank shares ended stead at $58.59. Macquarie shares rose more than 4% to $98.
In its results, the NAB revealed that it had already approved 70,000 home loan deferrals on balances worth $26.5 billion. It has also deferred repayments on 34,000 business loans with balances of $17.4 billion.
CEO, Ross McEwan said the bank was taking proactive steps to shore up its balance sheet as the country faces a possible “prolonged and severe economic downturn”.
“There is much uncertainty as to how long this period of dislocation will last and the outlook for recovery,” Mr. McEwan said.
“Necessary interventions to contain the spread of COVID-19 are having wide-ranging impacts across the Australian and New Zealand economies, with sectors such as airlines, retail trade, hospitality, and commercial real estate severely impacted.
“Our expectations are for a recession and much higher unemployment over 2020 and into 2021.”
Mr. McEwan said the decision to pay a dividend was a balancing act that recognised the bank’s retail shareholders.
“I can tell you retail shareholders will not be happy with a dividend reduction but we believe we have done the right thing,” Mr. McEwan said.
He said that “(About) 48 percent of shareholders do rely on a dividend … at the time of a placement you don’t want the share price dragged down.”
NAB said the $3.5 billion capital raising is expected to increase the group’s Common Equity Tier 1 Capital ratio to 11.2% from 10.39% at March 31.
Mr. McEwan also revealed changes to the bank’s strategy, including a new organisational structure, with the bank split into five businesses: personal; business; corporate and institutional, New Zealand, and digital offshoot UBank.
Mr. McEwan said the bank would focus its investment on fewer things.
