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National Australia Bank Ltd. : Australia's NAB Posts Record Cash Earnings As Profit Slumps

05/09/2012 | 08:22pm US/Eastern

--NAB reports 6% rise in 1H12 cash earnings to record A$2.83 billion

--Net profit for the period fell 15.5% to A$2.05 billion fueled by U.K. bad debt

--Bad debt overall rose to A$1.13 billion in six months to March 31

(Adds details of U.K. operations in paragraphs 5-6, analyst comment in 9th.)

By Caroline Henshaw

Of

National Australia Bank Ltd. (NAB.AU) followed its peers in reporting record cash earnings for the first half of fiscal 2012, even as ballooning impairments from its embattled U.K. banks dragged on profits.

Melbourne-based NAB, Australia's fourth-largest lender by market value, said Thursday that net profit in the six months to March 31 fell 15.5% to A$2.05 billion, down from A$2.43 billion a year earlier, as deteriorating economic conditions in Europe saw bad debts surge to A$1.13 billion.

Strong performance from its Wholesale and New Zealand operations saw cash earnings--which smooth out one-time items--rise 6% to A$2.83 billion, up A$160 million from A$2.67 billion over the same period in 2011 and in line with analyst estimates.

"The Australian franchise continued to perform well and market share was further strengthened during the period, despite an increasingly competitive environment," said NAB Group Chief Executive Cameron Clyde. "This was a solid result, particularly considering the increasingly difficult operating conditions for U.K. banking during the period."

NAB's U.K. business continued to weigh on the Australian lender's performance as Europe's debt crisis deepened and helped drive the country into recession this year.

Last month, NAB said it would incur GBP195 million ($317 million) in restructuring costs, write off GBP141 million of goodwill from Clydesdale Bank, and book an additional GBP120 million impairment charge related to protection-insurance claims in the U.K.

However, a 31.8% surge in cash earnings from the group's Wholesale Banking division, combined with better results from its Personal, Business and New Zealand operations helped to steady the bank's overall result.

Cash earnings at the company's asset-management arm declined 3.7% due to insurance lapses, while funds under management rose 3.9% to A$4.6 billion on the back of acquisitions, the lender said in a statement.

"Excluding for sales, trading and treasury income of A$495 million was 7% above average half-yearly earnings from the first half of 2008 to the second-half of 2011," said Goldman Sachs analyst Ben Koo.

"We expect recent loan re-pricing initiatives to provide some revenue benefit into the second half of 2012, and as such do not expect any major changes to consensus numbers," he added.

NAB restated its pledge to offer the lowest home-loan rates of all the major lenders. Australian banking operations gained market share during the half year in an "increasingly competitive environment," it said in the statement, with the business banking unit growing its share of lending by 70 basis points, and personal banking by 90 basis points.

The group's net-interest margin fell by 11 basis points from a year ago to 2.17%, largely as a result of higher wholesale and deposit funding costs in both its domestic and international operations. Over the half, NAB raised A$14.46 billion of term wholesale funding, it said.

NAB will pay an interim dividend of 90 cents a share, up from 84 cents in the same period a year earlier.

-By Caroline Henshaw, Dow Jones Newswires; 61-2-8272-4689; caroline.henshaw@dowjones.com

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