National Australia Bank has slashed its interim dividend to 30 cents and launched a $3.5 billion capital raising after its first-half cash earnings more than halved amid coronavirus-fuelled economic uncertainty.
The big four lender’s statutory net profit for the half-year ended March 31 was down 51.3 per cent to $1.31 billion while cash earnings fell by 51.4 per cent to to $1.46 billion in a surprise early release of the lender’s interim profit result on Monday.
The bank had been due to publish its half-year profit result on May 7.
NAB’s interim dividend cut from a fully franked 83 cents a year ago comes as the bank increases its collective provisions for forward-looking economic and targeted sector adjustments by $828 million to $2.14 billion.
It is also seeking to boost its balance sheet by raising $3 billion through a share placement at $14.15 per share – an 8.5 per cent discount to NAB’s adjusted last closing price on Friday as it enters a trading halt.
Another $500 million will be sought via a share purchase plan.
Chief executive Ross McEwan on Monday said the bank was taking proactive steps to shore up its books as the nation faces a possible “prolonged and severe economic downturn”.
“There is much uncertainty as to how long this period of dislocation will last and the outlook for recovery,” Mr McEwan said.
“Necessary interventions to contain the spread of COVID-19 are having wide ranging impacts across the Australian and New Zealand economies, with sectors such as airlines, retail trade, hospitality and commercial real estate severely impacted.
“Our expectations are for a recession and much higher unemployment over 2020 and into 2021.”
NAB said the $3.5 billion capital raising was expected to increase the group’s Common Equity Tier 1 Capital ratio to 11.2 per cent from 10.39 per cent at March 31.
Prudential regulator APRA this month advised the banks to suspend their dividend payments until there was more certainty around the economic landscape.
Mr McEwan said the decision to pay a dividend was a balancing act that recognised the bank’s retail shareholders.
“I can tell you retail shareholders will not be happy with a dividend reduction but we believe we have done the right thing,” Mr McEwan said.
(About) 48 per cent of shareholders do rely on a dividend … at the time of a placement you don’t want the share price dragged down.”
NAB last week flagged its first-half result would be rocked by a $1.14 billion triple hit of extra charges and writedowns even before coronavirus impacts are factored in.
This materialised via a hefty $742 million blow through software capitalisation changes and an $188 million increase in refunds related to its fee-for-no-service scandal.
NAB will also cop a $214 million writedown against its 20 per cent investment in wealth manager MLC amid a “challenging operating environment”.
Total credit impairment charges more than doubled to $1.16 billion from $470 million at the end of September and $449 million a year ago.
The ratio of 90+ days past due and gross impaired assets increased 18bps to 0.97 per cent as delinquencies increased across the Australian mortgage portfolio.
NAB said it had approved 70,000 six-month home loan deferrals as well as 34,000 business loans as customers increasingly feel the pinch of COVID-19.
Earnings from the bank’s major business and private banking segment fell by 5.7 per cent to $1.38 billion as NAB counted the cost of lower fee income and a lower earnings rate on deposits and capital given the low interest rate environment.
Costs were also higher due to investment spend partly offset by productivity benefits.
Corporate and Institutional Banking earnings fell 10.2 per cent to $701 million, reflecting materially lower markets income.
Excluding large items, cash earnings for the half year to March 31 fell 24.6 per cent to $2.4 billion.
NAB’s net interest margin – the difference between what it earns from a loan and the cost of servicing it – declined one basis point to 1.78 per cent.