NAB to exit wealth arms, posts half year cash profit of $2.76 billion

NAB has booked a 16pc fall in cash earnings for the first half as it plans to offload super and wealth management businesses.

NAB chief executive Andrew Thorburn says the MLC sale is not related to royal commission revelations. Pic: Hollie Adams

National Australia Bank has booked a 16 per cent fall in cash earnings for the first half as it announced it will exit its superannuation and wealth management businesses.

Announcing its first half results today, NAB said it is targeting a separation from businesses currently operating under MLC and other brands by the end of the 2019 calendar year.

NAB’s cash earnings - a measure followed by analysts that strips out discontinued operations, hedging and other items - dropped 16 per cent on a year earlier, to $2.76 billion, after expenses soared on restructuring costs.

Cash profit for the half was hit by a 25.3 per cent jump in expenses largely related to an overhaul announced last year, but slipped just 0.2 per cent once those restructuring costs were stripped out.

Statutory net profit rose 1.5 per cent to $2.58 billion.

Net operating income rose 2.5 per cent to $9.09 billion

MLC will likely be spun off by via public market options including a demerger or a float, but NAB said it will maintain the flexibility to consider trade sale options.

Following the announcement, NAB shares were down 1.3 per cent to $29.20 in early trade.

NAB has owned MLC since 2000, and will continue to operate its JBWere business servicing high-earning clients.

The move will allow the business to determine its own strategy and investment priorities to better deliver for customers and enhance its competitive position, NAB said.

“We are reshaping our wealth business, we are not exiting wealth management. We think that providing wealth advice and wealth products services to our clients is fundamental to what we do. It’s just the nature of it and the way we do it we feel needs to change,” chief executive Andrew Thorburn told reporters this morning.

“When we look at MLC, we feel it’s a good business and I think with some independent ownership and greater investment, it can really be a very sustainable and growing business in the whole superannuation field.

“But in the bank, we need to simplify the bank. The complexity in the bank is just killing us and we need to simplify.”

The move comes as regulators shine a spotlight on alleged misconduct in the wealth-management industry, hastening plans by big banks to retreat from the sector.

ANZ Bank recently sold a large chunk of its Australian wealth and insurance businesses, and Commonwealth Bank of Australia plans to list its global Colonial First State Asset Management arm.

Mr Thorburn said today’s decision to exit financial advice was unrelated to the royal commission, which has heard evidence of fees being charged for no advice and has flagged the possibility of forced asset sales.

“There’s a lot of buffeting at the moment and I don’t think we entirely have perspective, so we would not make a decision that’s this major based on a couple of weeks of evidence at the royal commission,” Mr Thorburn said.

“Respecting the royal commission’s importance, I think this is much, much bigger.

“This is a major decision for the bank and we would not make it on some noise and some shameful things that have happened, I think we have to take a much longer term view and we have to focus on our clients.”

The bank declared an interim dividend of 99 cents per share fully franked, in line with last year’s interim dividend but just short of analyst expectations of a $1.01 interim dividend.

Tier 1 capital edged up to 10.21 per cent from 10.1 per cent in the first half last year.

NAB’s credit impairment charge for the half year declined 5.3 per cent year-over-year to $373 million, benefiting from a decline in its exposure to individual impaired loans that offset higher collective provisions for the lender’s exposure to certain sectors that experienced higher levels of risk.

NAB’s net interest margin, a profit measure based on the difference between the rate at which a bank borrows and lends, expanded by 5 basis points thanks to lower funding costs and increases to mortgage rates, although the bank said its expenses for the six months climbed by 25 per cent, due in part to restructuring-related costs.

It comes as bank lending practices are under pressure in light of findings coming out of the royal commission into the financial services sector, which last month heard evidence of bank managers and other employees who wrote dodgy home loans attempting to achieve bonuses.

Earlier this month, NAB flagged a $755 million pre-tax restructuring hit after announcing in November it would slash 4000 jobs over the next three years as to introduce new digital and automated banking products.