So will the other big banks follow the example on Monday of the National Australia Bank which is looking for up to $3.5 billion in new capital after cash earnings plunged 51% to just $1.41 billion and the bank slashed its interim dividend 60% to just 30 cents a share?
The dramatic early announcement of the interim result – they had been due for release on May 7 – comes four days before its other Melbourne-based rival, ANZ was due to release its interim results and the size of its dividend to shareholders.
The NAB last week had revealed more than $1.1 billion in write-offs and charges – before the impact of the COVID-19 pandemic on its business. Westpac had revealed $1.43 billion in write-downs and charges – $900 million of that relating to its 23 million claimed breaches of money laundering laws.
The NAB’s profit slide, dividend cut, and issue raises the strong possibility that Westpac will be forced to raise money, but analysts wonder now that the NAB has made the first step, whether the ANZ will look to rush out it’s own raising this Thursday.
The well-capitalised Commonwealth bank doesn’t balance to June 30 and will reveal its results in early August. It is seen as not needing a capital boost right now – in fact before the advent of the COVID-19 pandemic, more and more analysts were talking about a possible capital return from the CBA.
Macquarie Group releases its full-year figures on Friday and is also well capitalised, but it is operating in sectors that have been hit hard by the crisis – deals, funds management, and commodities. For that reason, Macquarie could be tempted.
The slashing of the dividend to 30 cents a share from 83 cents a year ago allows the NAB to retain more cash to handle the growing strains from the impact of COVID-19, as will an enhanced dividend reinvestment plan.
The cut is the NAB’s answer to the request at the start of April from regulator, APRA, for banks and other financial groups to consider the level of payouts this year and possibly lower or drop them. The Bank of Queensland suspended its interim in mid-April.
Driving the NAB’s decisions was the expectations for a growing cost of the strains in the Australian economy and banking sector from the impact of the COVID-19 pandemic and lockdown of the economy, on top of the continuing cost of settling claims from the Hayne Royal Commission.
They have forced the NAB and its newish CEO, Ross McEwan into radical action in his first outing.
Slashing the dividend will see the NAB save $1.49 billion in cash with the new total payout set at around $894 million for 30 cents a share compared with $2.384 billion at 80 cents a share.
NAB increased its collective provisions for forward-looking economic and targeted sector adjustments by $828 million to $2.14 billion, a move when added to the $1.1 billion in charges announced last week, slashed earnings for the half, and forced the dividend cut.
“Collective provisions now include $2,135 million of forward-looking adjustments for anticipated stress in targeted sectors and across the broader economy, and capital is being bolstered via a capital raising and a reduced interim dividend,” Mr. McEwan said in a statement on Monday.
The NAB is looking for up to $3.5 billion in new capital. The fundraising is in two parts – $3 billion to big shareholders in a placement to be conducted on Monday and up to $500 million from its retail base in the share purchase plan.
The issue is the first from an Australian bank in the current COVID-19 crisis and lockdown. It is the second issue in five years from the NAB – back in early $2015, the bank raised around $5.5 billion in a placement to big shareholders and a separate issue to its retail base.
In a statement, NAB said it “is taking proactive steps to build capital via an equity raising and a reduction in the interim dividend, in light of the uncertain economic outlook due to the COVID-19 pandemic.”
