Shares in National Australia Bank Ltd. (ASX: NAB) are down nearly 5% in the past three months alone, while Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX ANZ) and the S&P/ASX200 Index (ASX: XJO) (INDEX: ^AXJO) are trending higher.
By now, investors who've held onto NAB shares for a long time are more than accustomed to the bank's underperformance. Since April 1,1999, NAB's share price is up just 18%, while its competitors, including Westpac Banking Corp (ASX: WBC) are up around 200%, not including dividends.
So is it now time to dump your NAB shares? Or is it a bargain waiting to be bought?
Whilst I think NAB could positively surprise the market when it announces its yearly report on October 30, taking a closer look at the bank's performance over the past few years, it's easy to see why the market isn't holding out hope.
Whilst the other banks have been slashing costs and increasing technology spend, NAB's been focused on repairing its UK exposure, which has meant integrating billions of dollars in bad commercial property loans into the main bank.
With a recovering UK economy it could be possible for NAB's two junior banks, Clydesdale and Yorkshire, to turn their fortunes around, but expecting such a result could prove to be wishful thinking. Closer to home, NAB continues to be a less efficient lender of money than each of its peers.
To buy, or not?
Since the March 2013 half-year, NAB's net interest income has increased just 3.5% and other operating income is up only 0.3%, while operating expenses have risen 11.6%. If you take away the 51%, or $564 million drop in charges for bad and doubtful debts it paints an even uglier picture.
While NAB is forecast to offer a dividend equivalent to 6% fully franked in the next year, potential investors would have to be content with the possibility of further underperformance in coming years, relative to the market and its peers. Investors hoping for a turnaround would be wise to remember Warren Buffett's timeless words, "turnarounds seldom turn."
