NATIONAL Australia Bank chief Cameron Clyne has named the bank’s loss-making UK arm as his single-biggest challenge, with the overseas operation weighing on profits and testing investor patience.
Problems in the UK underscored NAB’s disappointing 22 per cent drop in full-year net profit to $4.08 billion. Even so, Mr Clyne has ruled out a fire sale of the bank’s UK business – centred on the Glasgow-based Clydesdale Bank, saying such a move would trigger deep shareholder losses.
But he said there would not be any quick fixes in the UK business, which is struggling to break out of a recession.
The latest result was hobbled by restructuring charges related that business, which also reported a $213 million loss for the year.
The profit figures were delivered as NAB took a more downbeat view on the outlook for the Australian economy, suggesting the federal government’s growth forecasts of 3 per cent for each of the next two years is optimistic.
NAB is tipping the economy will grow at 2.5 per cent this financial year and 2.8 per next financial year.
“The UK remains our biggest challenge. While data last week suggests the UK ended the recession during the September quarter, we remain very cautious on the outlook,” Mr Clyne said.
”Unfortunately there is no quick-fix solution in the UK, and believe me when I say we’ve been looking. The restructure we announced to the UK in April was the right response and will take time before that business will generate acceptable returns,” he said.
Even as the UK last week technically ended its grinding recession, NAB remains in a holding pattern there. Any sale of the business would be at a steep discount to book value and this would trigger hefty shareholder losses. So this means Mr Clyne has little choice but to see the cycle through and persist with disappointing returns over the medium term.
Earlier this year, NAB sought to limit further shareholder losses in Britain by cutting 1400 jobs, closing dozens of branches and exiting commercial property loans, in response to an economy sinking deeper into recession.
NAB’s 0.5 per cent drop in full-year cash profit to $5.43 billion was largely as expected after it foreshadowed the disappointing headline numbers earlier this month. Shares in NAB ended down 9¢ at $25.79.
NAB’s Australian business marked a sharp contrast. In particular the once problematic Australian personal banking unit returned a 12 per cent jump in full-year profit to $1.04 billion, with returns helped by lower bad debt charges and revenue growth.
But the numbers reveal the bank’s mortgage discounting strategy could soon come to an end. Margins in the Australian personal bank, which sells mortgages, were down by 16 basis points during the year to 2.03 per cent, although there were signs of margins stabilising during the second half.
This story Administrator ready to work first appeared on Nanjing Night Net.