It’s possible that National Australia Bank Ltd (ASX: NAB) could be facing a $100 million fine. Should shareholders be worried?
What’s going on?
NAB is no stranger to financial penalties and reputation-hurting accusations. The financial services royal commission uncovered lots of problems.
According to reporting by the Australian Financial Review, NAB has admitted to thousands of cases of breaking the law which could mean it’s hit with a penalty of over $100 million. That would be a material hit to profit in this coronavirus period of time for the bank when credit provisions are much higher.
NAB has accepted “several thousand” of more than 10,000 allegations made by ASIC.
But the AFR reports that whilst the bank accepts it broke the law and was deceptive with its conduct, it’s not likely to settle.
The problem relates to a level of service promised and paid for, but the bank never provided it. That’s where the phrase ‘fees for no service’ came from.
It also apparently took the bank more than a year to stop charging fees after one of its executives received a report about this.
What to make of this
Compared to the overall costs of the royal commission so far, $100 million wouldn’t be that much. But it all adds up.
Banks have been reporting expensive costs for a few years now. If it just did the right thing to start with then it wouldn’t have its name dragged through the mud and it wouldn’t have cost hundreds of millions of dollars to fix the issues and pay penalties.
Shareholders should rightly be (at least) disgruntled by this because if this issue alone costs it $100 million then that’s $100 million that can’t be paid out as dividends or $100 million that can’t be used to strengthen the balance sheet.
NAB is one of the most important businesses in the country. Credit makes the economy tick. These types of issues are distracting, at a time when the bank needs to be focused on getting earnings and the economy back to normal.
I think a Warren Buffett quote is very apt here: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
This may not be the last we hear about remediation and penalties for NAB. With rising credit provisions and low interest rates, there are other ASX dividend shares I’d rather buy first like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I wrote about here.
