National Australia Bank Faces Major Challenges Under New CEO John Stewart

National Australia Bank's (NAB) result was lacklustre, overshadowed by controversies and foreign currency option trading losses. The bank's performance was heavily influenced by a 37% drop in profit from NAB's European banks and margin compression in its Australasian franchise. New CEO John Stewart indicated that the bank's Australian financial services business is not in a healthy shape, with a modest 4.8% increase in total income and a significant slowing of profitability.

Key Takeaways:

• NAB's result was heavily influenced by a 37% drop in profit from its European banks and margin compression in its Australasian franchise.
• The bank's Australian financial services business experienced a modest 4.8% increase in total income, but profitability slowed significantly.
• NAB's CEO, John Stewart, stated that the bank's business mix and funding strategy have contributed to its underperformance relative to its peers.
• The bank has decided to reinvest in its British and Irish operations, citing the potential for higher returns from rehabilitation rather than sale.
• NAB announced plans to raise $2 billion of subordinated debt and a $1.2 billion underwriting for its dividend reinvestment plan to meet Australia's capital adequacy ratio.
• CEO John Stewart expects it will take 12-18 months to get the Australian financial services business into shape, 2-3 years to turn around the European banks, and up to 3 years to clean up the corporate and institutional bank.

Statistics:

• NAB's profit from its European banks decreased by 37% in the March half.
• The bank's total income increased by 4.8% in the Australian financial services business.
• NAB's interest margin is 13 basis points worse than its nearest rival.
• The bank plans to raise $2 billion of subordinated debt.
• Australians Prudential Regulation Authority (APRA) minimum capital adequacy ration is 10%.
• Stewart expects it will take 12-18 months to get the Australian financial services business into shape.
• It may take 2-3 years to turn around the European banks.

Sources:

• The Age, Chief executive John Stewart makes first profit announcement.