National Australia Bank Ltd. (NAB)’s operations in the U.K. are now profitable while Australian consumer and business confidence remains fragile, Chief Executive Officer Cameron Clyne said.
Clyne, head of Australia’s largest lender by assets, is trying to revive earnings growth after bad debts at the bank’s U.K. unit last fiscal year led to the first decline in annual profit since 2009. Investors have supported his view not to take a “knee-jerk reaction” and sell assets in a “fire sale,” said Clyne. A sale of the U.K. business had become more viable, Citigroup Inc. analyst Craig Williams said last month.
“It’s a profitable business now,” Clyne said in an interview with Australia Broadcasting Corp. yesterday. “It will be subject to the U.K. economy and what’s going on over there.”
A recession in the U.K., where NAB has owned Scotland’s Clydesdale Bank and the Yorkshire Bank since 1987, forced the bank on Oct. 31 to increase charges for bad and doubtful debts from the U.K. unit by 335 million pounds ($531 million) in the year to September 2012. The bank’s shares have risen 86 percent since the equity market bottomed in March 2009, although it is the weakest stock performer among the top four Australian banks.
NAB has joined rivals seeking to cut expenses after full- year profit fell, committing March 13 to cut annual costs by A$800 million ($825 million) within five years.
“We’re doing the right thing, which is actually protecting shareholder value by running it for the long term, but it’s going to be a difficult issue for us as long as we’re in the U.K. and that economy is struggling,” Clyne told ABC TV’s Inside Business program, according to a transcript.
Private reports in the past month showed Australian consumer confidence rose to the highest level since 2010. Companies are not so confident. A NAB Business Confidence Index on March 12 of more than 500 companies fell to a reading of one from three in the prior month.
NAB’s share price has advanced 25 percent this year, compared with a 10 percent gain on Australia’s S&P/ASX 200 Index, the benchmark equities gauge.
Reserve Bank of Australia Governor Glenn Stevens and his board kept the benchmark interest rate unchanged at a half- century low of 3 percent this month. The central bank extended last month’s pause as prices of key exports including iron ore recovered from 2012’s lows after China boosted infrastructure spending, and as home prices stabilized.
“Consumer and business confidence remains fragile,” Clyne said. “There’s obviously been some improvement in sentiment, and we’ve seen the equity markets rally over the last couple of months, but confidence is fragile. People are still reluctant to commit to major investment, be it business credit or housing finance, and that’s going to continue until we get a more confident outlook.”
NAB and competitors have reduced staff and pay to protect profit. Australia and New Zealand Banking Group Ltd. cut 1,000 jobs in the year to Sept. 30, and this month announced plans to pare 50 positions in its institutional unit.
Westpac Banking Corp. eliminated more than 500 roles early last year and Commonwealth Bank of Australia, the nation’s biggest lender by market value, said in July it would freeze base salaries for people making A$150,000 or more in its institutional banking and markets division.
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