Is the National Australia Bank Ltd (ASX: NAB) share price a buy after falling 41% due to the impacts of the coronavirus?
The major ASX bank has been one of the hardest hit within the S&P/ASX 200 Index (ASX: XJO).
But even the hardest hit shares on the ASX could be worth a buy if their values have dropped far enough.
Why has the NAB share price been falling?
Investors have been fearful about NAB for a while because of the cashflow problems that many businesses are having right now. NAB is known as being more of a lender to businesses than some of the other major banks, so it's no surprise that it's suffering more than most.
But there are several other issues. Just today NAB outlined various items that would cause a hit of over $1 billion to NAB's bottom line this year. Some of it was just accounting write-downs, but the ongoing customer remediation remains problematic.
The ultra-low Reserve Bank of Australia (RBA) interest rate will also have painful effects on the profit that banks like NAB can generate. Just look at what has happened to European banks over the past decade.
Whilst some loans will be able to get payment deferrals, there could be particular trouble for areas like credit cards and personal loans.
So where now for the NAB share price?
Well, it seems that NAB will be forced to cut the dividend quite substantially. APRA already said that it expects that the big banks to cut their dividends. The Reserve Bank of New Zealand (RBNZ) has banned dividends, which means the NZ profit is quarantined for the time being.
It's clear that NAB is going to report a very large profit hit in FY20. But how painful and how long the hit will be will depend on the spread of the virus, the action of governments and the possibility of a cure or vaccine.
I can't see the NAB share price falling much further with all of the Australian government and RBA support. But when will it recover? Not any time soon is my own guess, but who knows! I think there are better opportunities out there.
