National Australia Profit Misses Estimates on U.K. Charges

By Narayanan Somasundaram

National Australia Bank Ltd. (NAB), the nation’s largest lender by assets, said full-year cash profit fell as much as 14 percent, the second drop in three years, due to writedowns and charges in the U.K.
Cash profit fell to between A$5.1 billion to A$5.2 billion ($4.6 billion) in the year ended Sept. 30, from A$5.94 billion a year ago, the Melbourne-based lender said in a statement today. Analysts had estimated earnings of A$6.18 billion, according to the average of 17 estimates compiled by Bloomberg.
The U.K. writedowns allow Chief Executive Officer Andrew Thorburn, who took up the role Aug. 1, to focus on his strategy of strengthening the
bank’s local operations. The lender, which has shrunk its British business and plans an initial public offering for its U.S. unit, said today it will set aside 670 million pounds ($1.1 billion) for compensation related to U.K. insurance and hedging products.
“This is a clean up act by the new CEO,” investment analyst Omkar Joshi, who helps oversee about A$1 billion including National Australia shares at Watermark Funds Management, said by phone from Sydney. The provisions show “a lot of commitment to get on with the job of focusing on the core Australia and New Zealand business.”

Photographer: Carla Gottgens/Bloomberg

Andrew Thorburn, Chief Executive Officer of National Australia Bank Ltd.

The shares, which fell as much as 1.2 percent in early trade, closed 1 percent higher in Sydney. The benchmark S&P/ASX 200 index rose 1.1 percent. National Australia has fallen 6.8 percent this year, the most among the largest Australian lenders.

U.K. Challenges

Thorburn has said repeatedly that the bank’s U.K. operations continue to face challenges after mounting bad debts in 2012 triggered a drop in full-year earnings that year.
“Taking these decisions gives us more clarity going into the future and allows us to focus on the core Australian and New Zealand franchises, which remain in good shape,” Thorburn said in the statement. “NAB is committed to including these types of adjustments within cash earnings now and in the future.”
NAB, which owns the U.K.’s Clydesdale Bank, plans to declare a final dividend of 99 cents, compared with a A$1.002 average estimate of five analysts surveyed by Bloomberg.
The lender reports audited annual earnings Oct. 30.
“The charges by themselves were just a bit higher than expected,” John Buonaccorsi, a Sydney-based analyst at CIMB Group Holdings Bhd. said by phone. “Otherwise the underlying earnings look reasonably positive.”
It will also set aside A$429 million as software impairment and deferred tax asset provisions, it said.
The writedowns and provisions will reduce its common equity tier 1 capital ratio by 33 basis points. It plans to add about A$1.6 billion in equity capital through a discounted and underwritten dividend reinvestment plan, where shareholders swap all or part of their dividends for new shares.