Today shares of National Australia Bank Ltd [ASX:NAB] seem likely to continue to tumble on the back of its release of half-yearly results. NAB finished trading yesterday 1.70% higher, closing at $25.78 per share, but those gains could be erased upon trading today.
At the time of writing NAB’s share price is trading $25.54, down almost 1%.
NAB has seen its share price slip by 12.85% over the past 12 months because of the fallout from the Hayne Royal Commission. Australia’s Big Four banks are facing an increasingly difficult operating environment as smaller international institutions capitalise on consumer’s distrust.
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Hayne costs take hold
Surging customer compensation bills in the wake of the Banking Royal Commission have forced NAB to slash their interim dividend by 16% from 99 cents to 83 cents per share. This is the first time in five years the bank has reduced its dividend.
In its half-year results released this morning, cash earnings were up 7.1% versus 1H18 earnings to $2.954 billion. This was largely because of the big hit to the prior corresponding period from restructuring costs. Earnings this half include $325 million hit in customer remediation costs.
In late April, the bank said it would take a new $749 million charge for customers given bad advice, which reduced reported cash profit by $325 million. Its compensation bill to customers has soared to about $1.1 billion.
Excluding the remediation costs, 1H19 earnings are broadly in line with 1H18, with revenue up 1%, which CEO Philip Chronican says reflects market share gains in small to medium enterprises and home lending.
Cash earnings in NAB’s consumer bank and wealth division slumped 20.6% to $638 million. The business and private bank earnings were down 1.3% and corporate and institutional was flat. New Zealand banking division outperformed performed, with cash earnings up 7.7%.
What’s next for NAB’s share price?
Mr Chronican said the dividend cut would:
‘Significantly strengthen NAB’s balance sheet providing greater confidence in our ability to exceed APRA’s “unquestionably strong capital” requirements from 2020.’
NAB’s common equity tier 1 capital (CET 1) ratio is at 10.4%, below the regulator’s benchmark of an ‘unquestionably strong’ 10.5%.
While NAB has seen some positive changes in terms of cost savings and reduced expenses over the past year, it is difficult to say whether the bank will be forced to cut its final dividend later in the year.
Some factors to consider in a challenging banking environment are slowing economic growth (will remain above 2% in 2019), slow housing credit growth, and a highly changing regulatory environment.
For Money Morning
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