Great Western dividend for NAB

NATIONAL Australia Bank’s majority-owned US subsidiary Great Western Bank has lifted its full year net profit.

NATIONAL Australia Bank’s majority-owned US subsidiary Great Western Bank has lifted its full year net profit 9 per cent due to cost cutting and fewer bad debts.

Great Western recorded net profit of $US105 million ($113m) in the 12 months to September 30, from $US96.2m a year ago.

NAB also collected a $US34m dividend windfall from the bank, representing its share of earnings from the US lender for the year to end-September.

NAB in October floated nearly 30 per cent of Great Western and plans to sell down its entire stake over time as it looks to focus on its core Australian and New Zealand operations.

The New York Stock Exchange listing raised $US288m for NAB.

While shares in Great Western debuted at $US18 each they have since moved higher to last trade at $US21.73. This gives the US bank a market capitalisation of about $US1.2bn.

Analysts expect NAB will wind up about even on its investment in Great Western, a regional bank with 162 branches in the US farmbelt states including South Dakota, Iowa, Nebraska, Colorado, Arizona, Kansas and Missouri.

NAB made an initial investment of $US800m in the US bank in 2008 with an additional $400m equity injection. Since taking charge, NAB has used Great Western to snap up the assets of several fallen banks across the US farm belt, all at bargain prices. With its focus on agribusiness the bank escaped the worst of the US housing crisis. Great Western ranks as one of the biggest agribusiness lenders in the US.

Great Western attributed the latest result to lower expenses and a smaller provision for loan losses. But it warned low interest rates and tough competition was hurting loan growth.

“We are pleased with this strong finish to a successful fiscal year 2014. During the quarter, we preserved the momentum we carried throughout the year,” said Ken Karels, Great Western’s president and CEO.

“The impact of our strategies drove positive results in fiscal year 2014. Asset quality continued to improve. The aggregate growth in our loan portfolio reflected our diversification and strengths in commercial real estate and agribusiness lending.”

Mr Karels said the business environment presented “both opportunities and challenges” as the bank moves into 2015.

“Persistent lower interest rates continue to drive fierce competition for lending growth, and we expect the outstanding balance of our total loans to be relatively flat in the first quarter of fiscal year 2015.”

While investors welcomed the October selldown of Great Western, new NAB boss Andrew Thorburn is expected to turn his focus on assets dragging down its return on equity and capital, including underperforming wealth arm MLC and its UK operations.

Like its peers, NAB is also facing a complex regulatory change that will end the benefit of gearing up its wealth arm.