Australia's biggest bank by assets is National Australia Bank Ltd. (ASX: NAB) but thanks to a history of underperformance, it's our fourth largest by market capitalisation. Right now, its shares trade at a discount to its peers and the market average.
Over the past decade its share price has appreciated 28% whilst the S&P/ASX 200 (INDEXASX: XJO) is up 57% and Commonwealth Bank of Australia (ASX: CBA) shares have gained 168%.
However, a history of underperformance is not the only reason NAB shares trade cheap.
Front and centre for many potential NAB investors is the looming Scottish independence vote. The vote, to be held on September 18, has suddenly become more concerning to investors with exposure to the country, following a YouGov poll which found 51% of Scots would vote yes at the upcoming referendum. This has already resulted in a falling British pound, to its lowest point in over 10 months.
NAB has a big presence in Scotland through one of its two UK Banking subsidiaries, Clydesdale Bank, which is one of the nation's largest lenders. NAB CEO Andrew Thorburn recently said: "A vote in favour of independence may give rise to significant additional costs and risks for Clydesdale Bank."
According to The Sydney Morning Herald, Credit Suisse analysts believe the bank "could face one-off costs of more than $100 million, higher bad debt charges, and delays in offloading its British assets."
NAB has been trying to offload its UK Banking division, which also includes Yorkshire Bank, as well as a large portfolio of bad commercial property loans for many years but has been unable to do so. One of the reasons it has been unable to find suitors for the assets could be the uncertainty surrounding a wrath of conduct related charges the group currently faces.
Buy, Hold or Sell?
NAB shares trade cheap for a reason and while it offers a bigger dividend yield than its peers, it's definitely not a stock I'm rushing out to buy. At $34.68 per share, I think investors should exercise caution and wait for a lower entry point.
