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A potential $450 million fine could hurt the NAB share price

A potential maximum fine of more than $450 million could really hurt the National Australia Bank Ltd (ASX: NAB) share price.

According to reporting by the Australian Financial Review, NAB has just admitted to 255 out of 297 alleged breaches of the credit act.

The reason why NAB could be facing a potential fine of more than $450 million is that each breach has a maximum penalty of $1.7 million to $1.8 million, which could perhaps total $459 million. We’ll find out soon enough what the fine is, if there is one. 

The issue in question is the NAB introducer program which gave out more than $100 million of cash payments. It was one of the items that was discussed during the Hayne royal commission into the financial advice and banking sector.

There was supposedly a number of worrying control issues with the program and employees were falsifying documentation and transferring money into and out of customer accounts according to a report commissioned by the bank itself.

NAB’s Mike Baird was quoted by the AFR in a statement, “As we have said previously, the program had inherent risks and ultimately fell short of customer and community expectations.

“We want customers to have the confidence to come to NAB because of the products and services we provide – not because a third party received a payment to recommend us.”

Of course, the fine – if one is charged at all – could be a lot smaller than the potential maximum.

Foolish takeaway

A potential $450 million fine would not wipe out all of NAB’s profit. However, it would put another dent in the bottom line that has already been plagued by customer remediation refunds and other related expenses.

NAB is trading at 13x FY20’s estimated earnings, before any fines. It now has a grossed-up dividend yield of 8.2%. There seems to be more royal commission pain to come, so I’m avoiding NAB shares right now.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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