National Australia Bank Ltd cash profit falls by almost 10%: What you need to know

National Australia Bank Ltd's (ASX:NAB) profits have again been brought down by its foreign exposure.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

National Australia Bank Ltd (ASX: NAB) today reported a 9.8% decline in cash profit to $5.184 billion for the 2014 financial year. The bank said the result was influenced by $1.5 billion in provisions and impairments, alongside a tax policy change announced earlier in the month.

Indeed, the bank's operating income rose 1.9% year-on-year but it was its operating expenses which hurt the bank's bottom line, rising to $10.18 billion from $8.41 billion. The bank was able to offset the 21% rise in operating expenses with a 54.7% drop in charges for bad and doubtful debts, which amounted to $877 million for the year, down from $1.93 billion in 2013.

Excluding the adjustments for cash earnings announced on October 9, prior period UK conduct charges relating to payment protection insurance and interest rate hedging products actually rose 12.4%.

On a statutory basis, NAB's result didn't look so bad either with profit attributable to owners falling just 1.1% to $5.295 billion. Its Basel III common equity tier 1 capital ratio climbed to 8.63%, from 8.43%. NAB said it will target a CET1 ratio between 8.75% and 9.25% by January 2016.

As a result of its higher capital adequacy ratio and lower earnings, NAB's already lacklustre profitability fell hard. Cash return on equity fell to just 11.8% from 14.1% and its net interest margin fell to 1.93%, from 2.03% a year earlier.

NAB's cash earnings per share were $2.16, in line with expectations but down 11% for the year. It announced a final fully franked dividend of $0.99 per share, taking the full year payout to $1.98.

CEO Andrew Thorburn said the Australian Banking division, where revenue grew 1.8% excluding markets and treasury income was "in good shape", but said it is "disappointing to record a full year result that includes $1.5 billion after tax in UK conduct provisions and other impairments."

He said the bank has made good progress on accelerating an exit from the UK and the US. "In July we announced the partial sale (£625 million) of the NAB UK CRE portfolio and in October began the sale process of Great Western Bank with the IPO of a 31.8% stake."

Mr Thorburn said the Australian and New Zealand businesses will remain the priority moving forward. He also said public markets could provide a way out of the UK: "In relation to exiting UK Banking this means we are now examining a broader range of options including those provided by public markets."

Should you buy, hold, or sell?

In early morning trade NAB shares drifted slightly higher but despite management's best intentions, the fact is there's still a long way to go before NAB becomes the bank it wants to be. The latest dividend puts the bank's shares on a grossed-up annual yield of 8.2%, which is very tempting in the low interest rate environment.

However, if you're a long-term investor like I am, I suggest steering clear of NAB shares. Especially whilst they're trading at such high prices (they're definitely not cheap). It might also be worth waiting until the bank can sell more of its stake in listed US subsidiary, Great Western Bancorp Inc (NYSE: GWB) and provide more colour on the possible sale of its two UK banks, Clydesdale and Yorkshire.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned in this article. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »