NAB steady in first quarter with cash profit unchanged at $1.65bn

NAB says it may defer the carve-off of its MLC wealth management business.

Picture: Hollie Adams

National Australia Bank’s separation of its MLC wealth management business could be deferred beyond the current financial year due to the challenging business environment.

NAB flagged the latest disruption to its planned public market exit, and consideration of a new ASX-listed tier one capital security, in a first quarter trading update.

The bank posted a cash profit of $1.65bn for the December quarter - a 1 per cent increase on the quarterly average for the second half of the 2019 financial year.

New chief executive Ross McEwan said the performance was “sound” in an environment of low interest rates and subdued lending growth.

He warned customer remediation programs and regulatory compliance investigations, including enforcement actions and class actions, were continuing, with the potential for additional charges, although amounts and timing remained uncertain.

“Work is underway to refresh our strategy and build a plan for the next 5 to 10 years, defining our ambition and being clear on the bank we want to be: one that gets the basics right, delivers for customers, is safe and secure, and has the culture we need for NAB to be a leading bank again,” Mr McEwan said.

NAB, he said, was delivering on its 3-year transformation plan which started in September 2017.

In the three months to December, a further 32 fees were removed or reduced in Australian banking or wealth, the number of products further declined, and 30 per cent of legacy IT applications were migrated to lower-cost cloud platforms.

This work was continuing.

Revenue for the quarter rose less than 1 per cent, reflecting a slightly higher net interest margin.

The margin benefited from home-loan repricing, helping to offset the low-rate environment.

Expenses rose 3 per cent due to the timing and nature of its technology and investment spend, as well as higher performance-based remuneration.

While ongoing cost pressures were creating challenges, the bank said it was continuing to target broadly flat expenses in the current financial year, in line with the transformation plan.

It also foreshadowed measures to improve its common equity tier one capital ratio, which ended 2019 at a skinny 10.6 per cent – just above APRA’s unquestionably strong benchmark of 10.5 per cent.

To improve the ratio, NAB said it was considering an offer of a new ASX-listed additional tier one capital security, as well as the potential repayment of NAB capital notes and subsequent conversion of up to $750m of capital notes into ordinary shares.

This would expand the bank’s CET1 by 18 basis points.

In the meantime, credit quality remained sound, with impairment charges for the quarter falling 21 per cent to $185m compared to the quarterly average for the September half.

The main drivers were lower dairy impairments in New Zealand and the impact of house price movements.

The ratio of collective provisions to risk-weighted assets remained steady at 96 basis points.

While NAB’s preference for MLC is a public market exit, it will continue to explore alternative transaction structures and options.

“To assist our exit, our focus includes client remediation, operational separation, and enhancing long-term business sustainability,” the bank said.

“NAB will take a disciplined approach to the exit of MLC Wealth and will execute a transaction at the appropriate time having regard to the interests of all stakeholders.

“Any transaction remains subject to market conditions and regulatory and other approvals.”

The bank’s net promoter score declined from negative-16 to negative-18 in December.

NAB, however, was still ranked first of the major banks.