Tide Finally Turns For Nab

Sydney Morning Herald

Friday May 12, 2006

Jessica Irvine

AFTER flogging off two Irish banks, retrenching thousands of staff, losing millions in currency trading scandals and bank robberies, Australia's biggest bank is back on track and back on the prowl.

Half way through a three-year restructure, NAB has posted a first-half profit of $1.99 billion, putting it equal first with the Commonwealth Bank for the biggest bank profit this half-year, right down to the second decimal point.

Underlying cash earnings grew a healthy 11.4 per cent to $1.84 billion, just below the bank's pre-foreign exchange scandal result of $1.85 billion in the first half of 2004.

"We're back where we started," group chief John Stewart announced yesterday.

Strong business lending and a better performance by the group's operations in Britain drove the improvement.

"The general feeling is that the tide has turned," Mr Stewart said.

"We were swimming against the tide and now we're swimming with the tide."

In a surprise development, Mr Stewart also canvassed the possibility of acquisitions.

"All I was flagging is that because we've done a few disposals, don't assume that we're always just going to sell things," Mr Stewart later told the Herald.

"I mean if we see the right things to buy, we will."

As for a timeframe: "I think it could happen at any time, simply because the bank is getting stronger every month and ... more likely able to deal with those changes."

Not ruling out a purchase in Britain, Mr Stewart also told the Herald he saw room in Australia for a consolidation between a bank and an insurance company.

"I wouldn't rule out a bank buying an insurer," he said.

"It could happen. We own the biggest life insurer in Australia - MLC - so we already own that.

"Suncorp has a general insurance company, so of course it could happen."

Mr Stewart said NAB was getting much better at cross-selling MLC's life insurance products alongside its banking products, and that a general insurance offering could be "complementary".

"So that would be the logic for us buying something in that space." But he insisted the bank was not considering any particular purchases.

"We're not looking at any acquisitions at all. Let me make that clear, we're not looking at any."

Shares jumped 46c or 1.2 per cent to $37.26 after the profit result.

"Overall this appears to be a strong number which will encourage the market," analysts from Goldman Sachs JBWere said in a note.

"Whilst the result is not perfect, it does highlight that the recovery is on track and having some success."

Lending figures show NAB lost market share in housing and credit cards in the half. Profits in the bank's wealth management arm MLC fell 9.4 per cent, due to new accounting changes and the end of concessional tax treatment of lifetime annuities.

The bank's dividend payout remained flat, as it has for the past 2 years, at 83c, 80 per cent franked.

Mr Stewart said the bank's turnaround story was far from over.

"If you think the turnaround is finished, there's still quite a lot to do to improve these businesses."

A new branch model will be implemented over the next 12 months in Australia and, after closing 100 branches in the north of England, new centres continue to be opened in the more prosperous south-east. Mr Stewart agreed with ANZ chief John McFarlane's sentiment that current Australian banking conditions were "as good as it gets". He said the federal budget's tax cuts would not be enough to reverse an expected slowing trend in annual credit growth next year.

© 2006 Sydney Morning Herald

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