National Australia Bank Ltd [ASX:NAB] has issued a notice this morning that it would be entering a trading halt in order to raise funds, after posting a massive hit to first-half cash earnings.
The Melbourne-based lender launched a $3.5 billion capital raising after its first-half cash earnings more than halved to $1.46 billion.
NAB’s statutory net profit for the half-year ended 31 March was down 51.3% to $1.31 billion, while cash earnings fell by 51.4%.
This morning’s announcement comes as a surprise as the Big Four lender was due to publish its half-year profit result on 7 May.
NAB warned shareholders it would cut its interim dividend from a fully franked 83 cents to 30 cents.
The cut comes as the bank increases its collective bad debt provisions by $828 million to $2.14 billion.
Of this sum, $807 million is directly related to the expected impact of the coronavirus outbreak.
Retail shareholders lucky to get anything
We knew there would eventually be a time when we had to say goodbye to the bank’s big dividends.
First the New Zealand Government ordered banks to quit paying dividends.
Then Australian Prudential Regulation Authority (APRA) ordered the banks to slash dividends on home soil.
NAB CEO Ross McEwan said the decision to pay a dividend was a balancing act that recognised the bank’s retail shareholders.
Indeed, considering the $3.5 billion cap raise, shareholders might consider themselves lucky to get any sort of dividend.
With NAB setting its expectations for a recession and much higher unemployment over 2020 and into 2021, further dividends could be put on life support.
Mr McEwan said (referring to the cap raise):
‘About 48% of shareholders do rely on a dividend… at the time of a placement you don’t want the share price dragged down.’
The cap raise will be undertaken at a fixed price of $14.15 per share, representing a discount of 8.5% on the NAB share price, of the last closing price on the ASX on 24 April.
Trading of NAB shares will be halted until Wednesday, 29 April or when the completion of the placement is announced.
Bleak outlook for top Aussie income stocks
According to the Australian Business Council, the Australian economy could take a $400 billion hit if restrictions adopted to fight the spread of COVID-19 continue.
But with the Government flagging that the restrictions and measures set up around the virus could remain for six months, the outlook remains bleak.
With APRA this month advising banks to suspend their dividend payments until there is more certainty, we could see further cuts.
Westpac Banking Corporation [ASX:WBC] are expected to release their interim results on 4 May (barring any earlier release).
Meaning Australian income investors might see another whack to their dividends.
If you are looking to protect yourself against the dividend disaster, check out our ‘Coronavirus Portfolio’.
Our Money Morning analyst reveals a two-pronged plan to help you deal with the financial fallout of the COVID-19 pandemic.
For Money Morning