NAB Falls as Bank Signals Higher U.K. Provisions: Sydney MoverNarayanan Somasundaram
National Australia Bank Ltd. fell the most in two weeks in Sydney trading after flagging a possible increase in provisions at its British operations, overshadowing a 7 percent increase in first-quarter profit.
Shares of Australia’s biggest bank by assets slid 1.8 percent to A$34.54 at the close. Provisions for some tailored business loans and compensation to U.K. customers for wrongly sold payment-protection insurance may rise, the Melbourne-based lender said in a statement today.
Chief Executive Officer Cameron Clyne is shrinking the lender’s business in the U.K., where banks including Lloyds Banking Group Plc are setting aside cash to compensate clients who were missold insurance. Unaudited cash earnings climbed to A$1.55 billion ($1.4 billion) last quarter as revenue gained 1 percent, while expenses swelled 3 percent, NAB said today.
“These are weak numbers from NAB with margins lower and revenue just increasing a touch,” Simon Burge, who oversees A$450 million, including NAB shares, as chief investment officer at Sydney-based Above the Index Asset Management Pty, said by phone. “While the potential need for added provisions in the U.K. is not entirely surprising, it will weigh on NAB.”
The bank will complete its assessment of potential additional provisions in the U.K. in its first-half accounts, it said in today’s statement. An increase will add to the A$165 million it set aside in the year to Sept. 30 for such claims. About $21.8 billion has been paid out by institutions to customers missold payment protection insurance from January 2011 to November 2013, according to the financial conduct authority.
Cash earnings at the U.K. business improved in the three months ended Dec. 31, NAB said, without giving details. The bank moved 5.6 billion pounds ($9.3 billion) of commercial real estate onto its own balance sheet in October 2012. The property portfolio fell to 3.6 billion pounds as of Dec. 31, the lender said today.
Bad-debt charges fell to A$324 million from A$554 million reported a year earlier due to lower provisions in Australia and the U.K., NAB said.
Lloyds Banking Group, Britain’s biggest mortgage lender, earmarked 3.5 billion pounds on Feb. 13 to compensate clients who were missold products including loan insurance, taking the provisions for such compensation to 9.8 billion pounds. Royal Bank of Scotland Group Plc said Jan. 28 it set aside 465 million pounds for the compensation.
NAB’s Australian business was broadly stable with “good growth” in mortgage lending, the bank said. Australian banks give few financial details in their quarterly update and are mandated to make full disclosures only every six months.
NAB is the nation’s third-largest mortgage lender, trailing top-ranked Commonwealth Bank of Australia, which has a 25.3 percent market share, according to the Australian Prudential Regulation Authority. Outstanding mortgages in Australia climbed 5.4 percent in the year to December, the fastest pace in two years, data from the Reserve Bank of Australia show.
Core Tier 1 capital, a measure of the bank’s ability to absorb losses, was 8.21 percent on Dec. 31 after providing for the 2013 final dividend. That compares with 8.43 percent on Sept. 30, based on Australian Prudential Regulatory Authority standards.
Australia & New Zealand Banking Group Ltd. reported first-quarter cash profit climbed 13 percent while CBA posted a 14 percent increase in first-half cash profit on lower bad-debt charges and growth in home lending. Westpac Banking Corp. doesn’t update investors on its quarterly performance. At CBA, the fiscal year ends in June, compared with September for its main competitors.