National Australia Bank Ltd., the nation’s largest lender by assets, will set aside more than £245 million ($410 million) in its full-year result for compensation related to U.K. insurance and hedging products.
The Melbourne-based lender’s shares fell 0.9 percent to A$34.39 [$32.03] at 10:31 a.m.in Sydney. The benchmark S&P/ASX 200 index was 0.2 percent higher.
The U.K. operations have weighed on the bank with mounting bad debts in 2012 triggering the first drop in full-year earnings that year since 2009. CEO Andrew Thorburn, who took up his role Aug. 1, has said repeatedly that NAB’s U.K. operations “still face a number of challenges.”
NAB is attempting to “draw a line” under the U.K. conduct issue, which would help it sell its business in the country, Macquarie Group Ltd.’s Sydney-based analyst, Michael Wiblin said in a note to investors today. While the provisions are quite large, “this is another sign that the new CEO is trying to be as decisive as possible.”
The bank will provide at least an extra £75 million [$125.5 million] to administer U.K. compensation on payment protection insurance and expects significant, unspecified additional provisions for these products, it said in a regulatory filing. NAB will also provide more than £170 million [$284.5 million] for redress of mis-sold interest-rate hedging products.
It posted a 7 percent increase in third-quarter profit on a 9 percent drop in bad debt charges while revenue fell 1 percent.
Unaudited cash profit, which excludes one-time items, climbed to about A$1.6 billion (US$1.5 billion) in the three months ended June 30 from A$1.5 billion [US$1.397 billion] a year earlier, NAB said in today’s statement. Net income was A$1.7 billion [US$1.583 billion], similar to the previous year.
The bank said that there remains “a wide range of uncertain factors” that would determine the total cost of the U.K. conduct-related matters. NAB agreed in July to sell a £625 million [$1.045 billion] parcel of mostly non-performing U.K. commercial property loans to an affiliate of Cerberus Global Investors.
“Conduct charges are difficult to predict, but we now expect that we will need to take further provisions at the full- year result for both interest-rate hedging products and Payment Protection Insurance,” Thorburn said in today’s statement. “In addition, the Scottish Independence vote takes place on 18 September and a vote in favor of independence may give rise to significant additional costs and risks for Clydesdale Bank.”
Lloyds Banking Group Plc, Britain’s largest mortgage lender, said July 31 it spends about £200 million [$334.6 million] each month on customer compensation for improperly sold loan insurance and has about £2.3 billion [$3.85 billion] of unused money set aside.
“Conduct-related payments are affecting the entire U.K. banking industry and NAB is caught in it like everyone else,” Brett Le Mesurier, a Sydney-based analyst at BBY Ltd., said by phone. “I’d think just the additional conduct-related provisions will cost not less than £400 million [$670 million] for the full-year.”
Home loans at NAB grew an annualized 8.5 percent in the third quarter as it continued to increase market share, it said. Business loan balances rose an annualized 5.5 percent.
The bank said its charge for bad and doubtful debts for the quarter fell 9 percent to A$241 million [US$224.5 million] primarily due to lower charges for Australian and U.K. banking.
NAB’s customer margin — which excludes some components of net interest margin — was “broadly stable”, it said.
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