Investors hate uncertainty. But you can't blame them because most of the time surprises aren't positive. Not for National Australia Bank Ltd (ASX: NAB) shareholders anyway.
What: Despite the S&P/ASX200 Index (INDEXASX: XJO) opening stronger this morning, NAB shares are at the time of writing down 1.50% as a result of its poor third quarter trading update. In it, our fourth biggest bank by market capitalisation announced unaudited cash earnings of $1.6 billion up 7% on the prior corresponding period. The bank also said revenue was down 1%, "due mainly to lower markets income as subdued volatility reduced trading opportunities".
Every investor would have their own reason for selling down the bank's stock today. It could be the uncertainty over future payments for the looming UK misconduct charges or poor performance of the Great Western Bank over in the US. Or even the Scottish Independence vote which new CEO Andrew Thorburn said: "May give rise to significant costs and risk for Clydesdale Bank (one of NAB's UK subsidiaries)."
So what: The modest earnings growth comes despite reporting just $248 million in bad and doubtful debts (B&DD) and fairly robust property markets in both New Zealand and Australia. Today's results highlight the truly disastrous impact NAB's foreign exposure has had on margins and earnings over the past 10 years.
Now what: I've been saying for a while that investors would do well to avoid buying NAB shares, for now. Today's results appear to have reminded investors once again that the bank has many legacy issues which its management has been unable to solve for many years. I am not buying any bank, but I'd much rather add Australia and New Zealand Banking Group (ASX: ANZ) to my long-term portfolio before NAB. At least until it has either a much lower share price or completely removes itself from the UK (or both!). But I'm not holding my breath and waiting around for it…
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