Andrew Thorburn has attempted to rule a line under National Australia Bank’s troubled UK banking operations with today’s $964 million writedown ahead of an eventual sale of the business, and investors have rewarded his candour.
Uncertainty over the long-running woes and misconduct-related matters has hung over the bank and Thorburn has moved swiftly to deal with the inheritance since he took over as chief executive from Cameron Clyne on August 1.
Investors had feared a massive capital raising of as much as $4 billion to help cover the provisions and some had been short-selling the bank’s shares in anticipation.
In the event, Thorburn announced an additional $1.6bn in new equity capital through a discounted and underwritten dividend reinvestment plan, which is a less dilutive option and much less than predicted.
As the bank finalized its full-year results to September 30, it decided to take a total of $1.3bn in writedowns and impairments that will slash its cash profit to between $5.1bn and $5.2bn.
That is down from $5.9bn in the prior year and well short of the improvement to $6.2bn that analysts had forecast.
The provisions for mis-selling payment protection insurance, including a new complaints handling process, increased payments for new complaints, the revisiting of closed cases and extending reviews to pre-2000 records, amounted to £420mn, or $605m after tax. UK regulators had required the changes.
Further provisions of $359m after tax related to the mis-selling of interest rate hedging products. Together, the two writedowns for compensation were well above expectations of around $450 million.
For good measure, NAB also threw in a couple of unrelated writedowns related to software and taxation issues that amounted to $380m.
“Clearly this is a disappointing result and I acknowledge that and no doubt investors will also be disappointed,” Thorburn told analysts in a conference call.
And yet NAB shares, which have slumped 7 per cent this year and underperformed its peers, edged 2 per cent higher as investors were instead relieved to see the compensation issues brought to a head and itemized in a transparent fashion.
In the lead-up to AGM season when executive pay comes under annual scrutiny, NAB’s charges were also taken above the line, as part of cash earnings, instead of as a special item. That means the lower profit result will reduce the bonus pool for senior executives.
NAB has been under pressure to sell its Clydesdale and Yorkshire banks in the UK and may consider a float in the new year, after recently offloading $1.1bn in distressed property loans.
NAB also plans to exit its Great Western Bank based in South Dakota via an initial public offering on Wall Street.
Thorburn was formerly the head of operations in the US and New Zealand and he has now taken a series of measures that mean, in the not too distant future, he will be able to focus solely on the bank’s high-performing operations at home.