NAB's profit takes billion dollar hit as it asks the market for AU$3b worth of funding

Red and black bank is seeking to raise AU$3 billion as its first-half revenue declines by 3.4%.

After announcing it was expecting to cop a AU$1.14 billion blow to its financial results, National Australia Bank (NAB) has reported a drop in statutory net profit, with its first half bringing in AU$1.3 billion, versus the AU$2.69 billion reported a year prior.

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For the six-month period, NAB posted AU$1.4 billion in cash earnings, reporting that its expenses rose 28.1% and its revenue declined 3.4%.

1H20 charges include $828 million of additional collective provision forward looking adjustments, of which $807 million is a top-up to the economic adjustment (EA) to reflect potential COVID-19 impacts, NAB said.

Cash earnings from the Business & Private Banking group dropped 5.7% to AU$1.4 billion; Consumer Banking grew 26.4% to AU$699 million; Corporate & Institutional Banking accounted for AU$701 million in cash earnings, a drop of 10.2%; and the bank's New Zealand business rose 5.6% to AU$562 million.

With its CEO Ross McEwan detailing the hit the COVID-19 pandemic has dealt his bank, he announced that NAB has turned to the market for help, with a fully underwritten institutional placement of AU$3 billion and a non-underwritten share purchase plan targeted to raise approximately AU$500 million.

"We entered this challenging period in a robust position, with capital, funding and liquidity significantly strengthened over recent years. However, given the uncertain outlook, we have taken proactive steps to further strengthen our balance sheet," McEwan told shareholders on Monday.

In announcing the equity raise, the red and black bank said it is "taking proactive steps to build capital via an equity raising and a reduction in the interim dividend, in light of the uncertain economic outlook due to the COVID-19 pandemic".

"These actions are intended to provide NAB with sufficient capacity to continue supporting our customers through the challenging times ahead, as well as increasing NAB's capital level to assist to manage through a range of possible scenarios, including a prolonged and severe economic downturn," the bank wrote.

The placement will be undertaken at a fixed price of AU$14.15 per placement share. This will see 212 million new shares issued, representing 7.1% of NAB's existing ordinary shares on issue.

McEwan also told shareholders the bank will be implementing a new structure with "end-to-end responsibilities", and that NAB is focusing resources on delivering "simpler, more streamlined products and processes".

"This will go a long way towards better enabling our colleagues and consistently getting basics right for customers," he said.

NAB said near-term focus would be on further streamlining products and processes, particularly in home and business lending, which it said should also support a "smoother transition to digitisation over the medium term".

"In technology we are continuing to migrate IT applications to lower cost cloud platforms and have a medium-term focus on standardising and simplifying our architecture to reduce the number of core systems and provide more consistent outcomes for customers and colleagues," it explained.

NAB said its physical networks were redesigned in 2019, which enabled a "significant scale-up in capability".

81% of the bank's staff -- more than 32,000 people – have been working remotely as a result of COVID-19. 1,250 customer-facing staff have attended webinars on how to guide customers through the pandemic.

With staff given access to Workplace and Microsoft Teams, NAB said cloud-based digitisation tools enabled COVID-19 e-forms to go live under 72 hours.

Part of its new structure involves "significant" investments in technology modernisation and resilience, "in-sourcing" and workforce upskilling, and data foundations built to enable advanced analytics and machine learning.

The bank is also working to provide staff with more cross-business data-sharing capabilities, and to reduce the amount of systems, products, and policies it has in place.

It will settle on five businesses: Business and Private Bank, Corporate and Institutional Banking, Personal Banking, Bank of New Zealand (BNZ), and UBank. This will require MLC Wealth to be fully divested.

It has also shuffled its leadership deck to help roll out the new strategy, with Nathan Goonan appointed group executive strategy and innovation, accountable for execution of the bank's strategy, innovation, and transformation agenda.

He is currently NAB's executive general manager group strategy and development.

NAB's chief customer experience officer Rachel Slade has also been appointed as group executive personal banking, assuming responsibility for the home lending and everyday banking for personal customers, including the branch network, direct, and digital channels.

Elsewhere, the bank said it has migrated 33% of its IT applications to the cloud, causing a 9% reduction in IT legacy applications since FY17.

It touted an increased reliability for apps migrated to cloud, and a lower run cost, and said its "critical" and "high severity" incidents have reduced 74% since 2017.

For the 2019 financial year, NAB reported a 13.6% drop in its statutory profit to just shy of AU$4.8 billion.

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