The National Australia Bank Ltd (ASX: NAB) share price might take a dive today after investors learned of more Royal Commission costs.
NAB is one of the four largest financial institutions in Australia in terms of market capitalisation, earnings and customers. However, in 2018, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending.
NAB’s Latest Royal Commission Costs
NAB has announced additional Royal Commission charges this morning, amounting to $749 million before tax, or $525 million after tax because of customer-related remediation.
As a result, the first half of FY19 cash profit will be reduced by $325 million and discontinued operations will be hurt by $200 million.
Approximately 91% of the announced charges are for Wealth related matters, with the rest related to banking. When combined with provisions raised in the second half of FY18 which have not yet been utilised, this brings total provisions for customer-related remediation at 31 March 2019 to $1.1 billion.
Some of the areas for the remediation include consumer credit insurance sales, non-compliant advice provided to Wealth customers, banking matters such as fees charged on fee-exempt transactions, adviser service fees charged by NAB Financial Planning (salaried advisers) and NAB Advice Partnerships (self-employed advisers).
NAB CEO Philip Chronican said: “We are putting things right where we have treated our customers poorly and making sure that they are compensated more quickly. Since June 2018 we have made approximately 360,000 payments to customers with a total value of approximately $145 million.
“There are currently around 350 people dedicated to remediating customers and we will soon have around 500 across NAB as we bring greater focus and discipline to resolving issues and making sure they don’t happen again.”
The NAB sounds contrite and is trying to put things right, but it has probably taken too long to get to this point. The former NAB CEO and Chairman were right to leave – someone has to be held accountable.
NAB Dividend Cut?
Interestingly, the NAB announcement said that, as is usual practice, the Board will review NAB’s dividend settings. That sounds a little ominous.
I’m not a fan of owning the big banks at this stage of the Australian credit cycle and the regulatory & political pressure they’re facing. I think the ASX shares revealed for free in the report below might be more reliable picks than NAB.
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.