The National Australia Bank Ltd (ASX: NAB)
share price has fallen 3% after the bank unveiled more Royal Commission costs.
NAB is one of the four largest banks in Australia in terms of market capitalisation, earnings and customers. However, in 2019, it was Australia’s largest lender to businesses and has operations in wealth management and residential lending. It also operates the online-only Ubank.
More Royal Commission Pain For NAB
The big four ASX bank announced additional charges of $1.18 billion after tax, or $1.683 billion before tax relating to Royal Commission remediation as well as a change to its software capitalisation policy.
Sadly, this is expected to reduce the second half cash earnings by an estimated $1.123 billion and earnings from discontinued operations by $57 million.
New Royal Commission Remediation
The new customer-related remediation will amount to almost $1.19 billion before tax, or $832 million after tax.
NAB said the key driver of this was the inclusion of a provision for potential customer refunds of adviser service fees paid to self-employed advisers.
The bank stated that it now has provisions in place for the estimated costs and customer payments relating to “all known material customer-related remediation matters based on information currently available.”
But even now, it seems shareholders won’t know everything because until all customer payments have been completed the final cost will remain uncertain.
NAB CEO Philip Chronican said: “While we previously noted additional customer-related remediation provisions were expected in 2H19, the size of these provisions is significant. We understand that shareholders will be rightly disappointed. However, we also recognise the need to prioritise dealing with these past issues and fixing them for customers.”
Around 92% of these new charges are for wealth and insurance related matters, with the rest being bank-related matters.
Software Policy Change
NAB is changing the minimum threshold at which software is to be capitalised from $0.5 million to $2 million. This is expected to reduce NAB’s capitalised software balance at 30 September 2019 by $494 million and reduce the second half of FY19’s cash earnings by $348 million after tax.
There is no impact on the bank’s capital because it’s already deducted from Common Equity Tier 1 (CET1) capital.
Summary
The Royal Commission has been a very painful experience for NAB shareholders. NAB lost its CEO, Chairman and it’s costing over a $1 billion in remediation. NAB will hopefully be able to retain its dividend at $0.88 per share for the next result, but dividends aren’t guaranteed.
It’s news like this that makes me happy I rely on reliable shares for my dividend income, like the ones in the free report below.
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