ID :
25797
Tue, 10/21/2008 - 17:28
Auther :

NAB profit down, revenue to fall

National Australia Bank Ltd (NAB) is facing falling revenue and more bad and doubtful debt charges after reporting a fall in annual profit amid an "extremely difficult" environment for the banking sector.
NAB could also have to raise additional capital if its $1.7 billion portfolio of toxic synthetic collateralised debt obligations (SCDOs) deteriorate to sub-investment grade, analysts said.

Chief executive John Stewart said NAB was focused on organic growth, rather than mergers and acquisitions, and that there was no major need for it to conduct a major capital raising. Although Mr Stewart said the bank was well placed to weather the global financial storm and was bullish about a return to profit growth, analysts labelled the result weak on several fronts.

NAB reported Tuesday a 0.9 per cent fall in reported net profit for fiscal 2008 to $4.536 billion, compared to the previous corresponding year. Its cash earnings fell 10.7 per cent to $3.9 billion, which was in line with its forecast.

"Unfortunately, this strong result was marred by the provisions required against
conduit assets in the nabCapital securitisation business, reflecting unprecedented
conditions in global markets," Mr Stewart said in a statement.
Cash earnings plunged on the back of a tripling in bad and doubtful debt charges to
$2.48 billion.
While investors pushed NAB's shares 7.3 per cent higher to $24.66, analysts said the
actual cash earnings result could be several hundred million dollars weaker than
reported.
"There are enough holes in these accounts to make me believe the real figure is less
than $3.9 billion, and probably by several hundred million," Greg Hoffman, research
director at Intelligent Investor told AAP.
An extra $150 million after-tax charge (over $200 million pre-tax) was made for bad
and doubtful debts, as well as another $100 million pre-tax provision for new
business initiatives - both of which were not included in the headline cash earnings
figure, he said.
"They've got a lower tax rate this year, and they've pulled out some one-off tax
gains in the US that won't be coming around next year. So it's messy."
NAB also capitalised its IT expenses of $963 million - up $100 million on last year
- rather than writing it off as an expense, he said.
NAB chief executive designate Cameron Clyne plans to spend between $800 million and
$900 million a year to move the bank's IT system to a next-generation platform.
Mr Clyne said he expected bad and doubtful debts to rise across NAB's Australian,
New Zealand and UK businesses as recession bites in New Zealand and the UK.
He said the bank's security, leverage, and diversification would help prevent bad
and doubtful debts climbing to the high levels of the 1991 recession.
The bank has already experienced seven defaults to date on the portfolio of the
riskiest of its $4.5 billion book of conduits - securities linked to risky US
sub-prime assets, which are being managed by an in-house team of 10 senior
employees, nabCapital chief executive John Hooper said.
Seven defaults had been triggered by the collapse of Lehman Brothers, Washington
Mutual, Freddie Mac, Fannie Mae, and three Icelandic banks.
NAB said its total provisioning now stands at $3.294 billion.
Excluding provisioning, the bank's underlying result for the year ended September 30
was $8.1 billion, which was up 13.9 per cent.
Mr Stewart said the bank's Australia business continued to perform well with strong
revenue growth, while the UK was resilient amid very difficult market conditions and
the New Zealand arm had delivered solid revenue growth.
In Australia, bad and doubtful debt charges were up 55 per cent, reflecting slower
economic growth and tighter credit conditions.
A 97 cent final dividend, fully franked, was declared.

X