In the past decade, shares in National Australia Bank Ltd (ASX: NAB) have performed very poorly, compared to both the broader market and its peers.
For example, NAB's share price is up just 33% whilst Commonwealth Bank of Australia (ASX: CBA) is up 176% and the S&P/ASX 200 (INDEXASX: XJO) is ahead 60%.
What's wrong with NAB?
The reason behind NAB's lacklustre performance can be put down to its exposure to a number of foreign markets. The worst, by far, has been the bank's UK interests which currently include two subsidiaries, namely Clydesdale and Yorkshire Banks.
When the GFC hit global markets, the UK economy was far more affected than ours. This resulted in a huge amount of bad and doubtful debts for an ambitious NAB, mainly in the form of commercial property loans.
Recently, these loans (which currently total into the billions of pounds) were integrated into the Australian bank, through a "run-off" portfolio. Paying down these assets will likely be a priority for new CEO Andrew Thorburn.
Also in the UK, the bank still has to deal with the potential for Scottish independence, something it recently said, "may give rise to significant additional costs and risk for Clydesdale bank."
In addition, the bank is facing a wrath of conduct related charges which it described as, "difficult to predict". The bank said, "we now expect that we will need to take further provisions", when it reports full-year results later in the year.
A step in the right direction
Its US banking subsidiary, Great Western Bank (GWB), has however at least managed to report profits for a number of years. In the March 2014 half year, it reported cash earnings growth of 8.6% on the prior period, to $US63 million.
NAB bought the bank in 2008 for less than $1 billion but it has struggled to compete with larger rivals in the region. GWB operates through more than 160 locations in states such as Arizona, Colorado and Iowa and specialises in agribusiness. It boasts approximately $US9.1 billion in assets.
In its ASX announcement today, NAB said its intention would be to sell down 100% of GWB, over time. However, as is customary in the US for sell-down related IPOs, NAB will be required to hold a certain amount of shares for a set period of time.
The bank announced: "The timing of subsequent sales of GWB shares is unknown and is subject to customary sale restrictions in the US, including an initial 180-day lock-up period."
Buy, Hold or Sell?
In addition to today's announcement, NAB recently offloaded a portion of its underperforming UK assets to private equity firm, Cerberus Global Investors. In my opinion, these are two logical steps for the bank to take if it is to get its house in order.
However, as I noted above, there are still a number of significant risks facing the bank and I'd like to get more clarity on the misconduct related charges (likely, when the bank reports full-year results on October 30). In the meantime, I'll be on the lookout for other high-yielding dividend stocks (see below).
