The National Australia Bank (NAB) has suffered a 10.7 decline on cash earnings as a result the global credit crisis, despite posting a 13.9 per cent increase in underlying profit for the year to September 2008.
NAB’s group cash earnings were down 10.7 per cent, to $3.9 billion, for the year ending September 2008, a decrease of $470 million compared to the previous corresponding period (pcp). While underlying profit increased by $996 million, or 13.9 per cent, to $8.1 billion, the group said cash earnings had been reduced by a higher bad and doubtful debts charge, mainly related to its exposure to collateralised debt obligations (CDOs) within nabCapital.
NAB chief executive John Stewart said the underlying profit result was “marred” by the provisions against the CDO exposure. However, Stewart said while the $1 billion loss incurred by nabCapital was “significant”, it was “considerably less than the write-offs of many of our global peers”.
The group reported revenue growth of 5.8 per cent compared to the pcp, which the group said was achieved through relationship banking franchises and nabCapital, while net profit for the year was down 0.9 per cent to $4.5 billion.
Stewart said MLC had “performed well given the deterioration in investment market conditions”. The planning group reported underlying cash earnings of $408 million, a slight increase on the pcp, but a decrease in net operating income of $35 million (5.4 per cent). This reflected the “impact on income of the recent market downturn on funds under management”, the report said, with MLC responding by “driving down costs” and improving efficiency throughout the year.
Bad and doubtful debt charges were up 55 per cent in the group’s Australian region, with “higher specific provisions generated across business and private banking”, the report said.
The group said a review of its loan portfolio in the fourth quarter of the September 2008 financial year found its portfolio to be “performing well and … appropriately provisioned”.
The group’s return on equity declined by 280 basis points to 14.3 per cent compared to the September 2007 year, reflecting lower earnings and higher levels of capital held. The final dividend for the year is 97 cents per share, up 2 cents from last year.
Stewart said the outlook for global financial markets has “clearly become riskier and less certain”, with conditions expected to worsen further. Stewart said while “few regions in the global economy can expect to emerge unscathed” from the economic weakness, he does have faith in the “relative resilience” of the Chinese and Indian economies to help “cushion the impact” of a global downturn on Australia and New Zealand. The UK economy, however, is “in all likelihood, moving into a recession”, Stewart said.
