NAB will raise ire with dividend balancing act

NAB chairman Philip Chronica and CEO Ross McEwan. Picture: Stuart McEvoy.

NAB’s decision to go early and raise $3.5 billion in “safety” capital is classic Ross McEwan. But any brownie points were lost by the decision to pay out $895m in dividends.

Retail shareholders account for 48 per cent of the bank’s capital and CEO McEwan and his chair Phil Chronican played a traditional tune in going early to raise capital.

The 30c a share deposit, or 61 per cent of earnings, was the sugar to offset the kick in the teeth retail shareholders got via the dilutive capital raising.

If there was merit in raising money to cover for the unprecedented economic climate, there was zero in the dividend payment.

McEwan said it was a question of balance, but the answer is one the market will hopefully see through.

The placement underwritten by Macquarie Bank will be at a relatively modest discount of 8.5 per cent at $14.15 a share, and it will help boost the bank’s capital raising at a time when APRA has given the banks’ a green light to use their credit buffer to survive the present downturn.

At 10.39 per cent, NAB is well above the 8.5 per cent minimum tier one capital level.

NAB unveiled its results early to beat the market on equity raisings.

Westpac, it will be remembered, raised $1.5 billion last year, so whether its chair John McFarlane sees the need to raise more remains to be seen.

NAB’s McEwan used the result to also unveil the results of his strategic review which concluded “this is a good bank which can do better”.

The former RBS chief said the bank had complex products, was slow to respond and customers had an inconsistent experience. The bank’s net promoter score rose three points to negative 18, which means more customers will tell friends not to use NAB than recommend it.

Alarmingly NAB is top of the big four banks on the net promoter score, which doesn’t say much about the others.

McEwan said the key to strategy was execution. But he has simplified the bank’s divisional structure, making each responsible for its own patch and cutting internal projects from 467 to 20.

Rachel Slade will be the new retail boss while strategy chief Nathan Goonan was promoted to become a CEO direct report.

But NAB is still to appoint a permanent replacement for the retiring Anthony Healy as head of its key business bank.

The analysts are worried the bank has not set aside enough for bad debts and UBS analyst Jonathan Mott noted that “banks rarely lose money in areas where they expect to lose”. It’s where they don’t expect to lose money that the problems come.

Whether are any unforseen hits coming only time will tell, but .McEwan did say he was not aware of an incoming hit from Austrac.

NAB is negotiating with the regulator, which shocked both Westpac and CBA with surprise legal actions.

Its a tough time in banking and NAB has come out early to clear the air with ANZ to follow on Thursday and Westpac next week.