NAB

National Australia Bank’s interim result was a mixed bag (it has a 30 September year end). The bank’s reported profit fell 16% to $2.1bn largely due to losses in the UK, which we discussed recently on 30 Apr 12 (Avoid – $25.22). Yet National Australia still managed to produce record cash earnings of $2.8bn, up 6%. Cash earnings per share increased 3% to $1.30, and the interim fully franked dividend was increased to 90 cents (estimated ex date 31 May), from 84 cents.

Over the past two years National Australia has increased its share of Australian household deposits from 13.4% to 14.5%, and Australian mortgages from 12.8% to 14.7%. But it’s come at a cost. Offering cheaper loans and attractive deposit rates has squeezed margins—the net interest margin has fallen to 2.17% from 2.28% over the past six months.

National Australia’s performance would have been much better were it not for the dismal foray into the UK and exotic structured securities. Though the UK business is being restructured and the ‘Specialised Group Asset’ portfolio is being wound down, we’ll feel more comfortable once both no longer pose a threat.

The share price has fallen 3% since 30 Apr 12 (Avoid – $25.22), and we’re sticking with AVOID.