SYDNEY: National Australia Bank Ltd warned on Thursday its full-year cash earnings will fall as much as 14 percent due to almost A$1 billion ($881.4 million) in higher charges from its troubled UK business. NAB, Australia's fourth-largest bank by market value, said it would post annual cash earnings of A$5.1 billion to A$5.2 billion, compared with an average estimate of A$6.2 billion from 16 analysts polled by Thomson Reuters and a record cash profit of A$5.9 billion a year earlier.
The hit to earnings surprised some analysts and signalled new Chief Executive Officer Andrew Thorburn, who took the reins on Aug. 1, is taking a tougher line on the struggling UK operations. "The size of the provisions were higher than I expected," Morningstar analyst David Ellis said. The provisions related to payment protection insurance and interest rate hedging costs further cloud the prospect of an easy turnaround for the UK business.
The British unit, which includes Yorkshire and Clydesdale bank branches, has been weighing on NAB's performance, and investors are watching for the bank's potential exit of its assets there.
Thorburn said writedowns and provisions would cut the bank's common equity tier 1 capital ratio by 33 basis points. "We've obviously got a new CEO, I would suggest that he's taken the opportunity to take a far more conservative view on assessment of the required provisions," Ellis said. In July, NAB had agreed to sell a $1 billion portfolio of mostly non-performing UK commercial property loans, and said it would continue to look at accelerating the sale of non-core assets. "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 a statement. Shares in the bank, valued by the market at $67 billion, are down 7.7 percent this year, underperforming the benchmark S&P/ASX 200 index which has fallen 1.3 percent. At 1143 GMT, they were up 1.18 percent at A$32.5 in a strong market, after the bank assured investors of a 2.1 percent rise in final dividend. CAPITAL BOOST Alongside the writedown, NAB announced it will add about A$1.6 billion in capital through a discounted equity investment option where investors' dividends are directly reinvested in new shares of the bank.
That includes underwriting $800 million of shares over and above the expected take-up under the dividend reinvestment plan. "The executive board at NAB are very, very keen to make sure that we have a strong balance sheet and that will be paramount," Thorburn told analysts during a conference call.
Australia's "Big Four" banks - NAB, Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia and Westpac Banking Corp - have been doling out lofty dividends as they post record results. NAB's announcement on Thursday that it would lift its final dividend to A$0.99 would continue that trend. It will report full year results on Oct. 30.
"The company has attempted to ease investor pain by announcing that it will lift its fully franked dividend," OptionsXpress analyst Ben Le Brun said.
But the weak earnings result will be the second time in three years that it has posted a fall in cash profit. Its cash profit dropped 0.5 percent in 2012 on higher charges for bad and doubtful debts in the UK. It bounced back in 2013, posting record cash earnings, helped by strong results from the domestic franchise.
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