Can NAB make a go of the Goldman Sachs JB Were broking business?
Welcome back!
During the week NAB purchased 80.1% of Goldman Sachs JB Were’s brokering business for $99 million but will be purchase be another bank debacle for the big four banks.
The brokering business has approximately 22,000 customers and while consuming around 8% of the domestic broker market in Australia is far from the hey-day of JB Were’s peak. The decision for NAB to purchase a controlling interest is a bid decision in light of the broader failures experienced by all the banks will wealth management operations.
But can NAB make a success of this? NAB have arguably bought the operations in a downturn which will benefit the bank but the business is likely to experience significant leakage of major brokers and broker clients as the leading brokers start their own operations or get snapped up by other majors like Macquarie.
The old days of brokering houses being a goldmine appear to be long gone and unless NAB can find a way to create ‘rivers of gold’ again from the operation then it’s likely it will be a failure. Althoughs JB , at a cost of $99 million is is marginal in the scheme of the banks overall operations both in positive and negative terms.
What do you think of the decision to buy the Goldman Sachs JB Were brokering operations? Are you a client who will stay with them under NAB or will you leave? Share your thoughts in our comments section.
NAB seek $2.75 billion share placement
The NAB in a quarterly update announced a $2.75 billion capital raising, $2 billion from institutional investors and $750 million through a retail share offer.
The share placement will increase tier one capital from 8.2% to 8.8% in what was a mild surprise to the market and indicated that we have not sen the end of the bank capital raisings.
The announcement makes the recent ANZ announcement even better timed as they managed to jump in first to secure capital with others likely to come back to the table for further funds.
The bank will also raise up to $750 million through an offer of new shares to retail investors.
NAB used the market update to also indicate tat they have taken a charge for bad and doubtful debts which rose to $1.06 billion for the three months to 30 June 2009. The announcement indicated that the bank was being hit hard by the market crunch and general rise in bad debts.
The equity raising will go some way to secure further liquidity for the bank at a time when the Australian economy has not hit the peak of the downturn.
NZ Tax Bill to hot Australian Banks
New Zealand has been an unhappy hunting ground in recent years for Australia’s top four banks and it seems to be the case again with the big banks looking at a AUD$1.9 billion tax bill after a ruling by the New Zealand High Court.
The decision was against the National Australia Bank regarding sic structured finance transactions. While an appeal is a given the NAB are looking at needing to raise capital to cover the $550 million approx provision.
Justice John Wild said the transactions had “no commercial purpose or rationale”, other than to use the bank’s tax capacity to generate exempt income. The decision puts not only NAB but CBA, Westpac and ANZ on a collision course with regulators and a similar outcome.
It would seem ANZ and Westpac have adequate provisions already in case whereas CBA was less clear.
Australia’s Big 4 AA Rated
Australia’s Four Pillars in the banking sector has stood up amazingly well in the face of the global recession with the Commonwealth Bank, ANZ, Westpac and National Australia Bank all maintaining AA rated despite the global slump.
The big four remain as only eight international banks rated AA in the world.
Commonwealth Bank and Westpac dominate rival Big 4
The Australian publised a good article during the week indicating the amazing growth of retail deposits experienced by the merged CBA-BankWest which held a 40% share of retail deposits among the Big Four banks with a $137.1 billion deposit book, and the merged Westpac and St George banks had a 28% share with $98.6 billion.
Both Commonwealth and Westpac held a 68% share of the big four Australian banks retail deposits by March 2009 according to the review commissioned by Brandmanagement.
It was also revealed that the NAB has a $54.9 billion retail deposit book and ANZ a $56.4 billion book.
Which Australian bank has a plan for growth?
The Australian banking sector like the global banking sector has become risk averse and in a time where banks around the world are falling over the Australian banking sector still looks strong.
But if you were thinking a few years out and wanted to invest now, where would you put your money? The Australian banks have mostly followed the same path od de-risking and focusing on Australia so if you were investing you would want to consider what growth options they are aiming to access.
It would appear growth options are limited in Australia but and that NAB, Westpac and Commonwealth Bank all seem to be aiming at Australia for the future both short and long term. ANZ is the only bank that is aiming for a different path, they see growth in Asia as the major driver in the future.
ANZ have a defined strategy under Mike Smith, much like when McFarlane was in charge in the early days at ANZ. ANZ soon took the mantle of the best managed bank under McFarlane and I expect in a few years time people will be singing the praises of Smith.
Asia is a developing region and for business it is an area that needs to be invested in to benefit from growth as opposed to investing in old growth markets of Europe and Australia.
So which do you think is the best Australian bank if you are looking at a three to five year perspective?
NAB surge in bad debts amid profit announcement
The NAB commenced the Australian bank reporting season with a surge in bad debts to indicate the recession is finally taking a big toll on the Australian economy.
NAB’s bad debts rose from $726 million to $1.8 billion as the worsening business and consumer conditions start to show considerable strain on the banking sector. Cash earnings fell to $2 billion (down 9.4%) with rising impairment charges and higher funding costs. The net profit was only down 0.9% to $2.66 billion.
The NAB also announced a dividend cut as previously foreshadowed, the cut of 24c per share took the dividend to 73c per share. The cut will preserve capital and the dividend will also be partially underwritten by a $500 partially underwritten dividend reinvestment plan.
NAB shares retreated 76c to $21.82, as the bank slashed its dividend by 24c to 73c to preserve capital, and backed it up with a $500 million raising through a partly underwritten dividend reinvestment plan.
The result did nothing to soothe the markets expectations of further pressures on the banking sector and accordingly NAB and the other banks were sold off amid concerns of continued hard economic times.
Banks cut rates in response to RBA decision
With the RBA cutting rates by 0.25% in April to 3.00%, a 49 year low, the bank gave a clear indication the market is nearing its low in the interest rate cutting cycle.
The RBA is likely to lower the offical cash rate by only another quarter to a half percent before it reaches the bottom of the rates cycle. From that point it will only stay low for a short period it would seem until rates start rising if previous recessions are anything to judge.
In response to the bank cuts Westpac, St George, Commonweath Bank and ANZ all cut their rates by 0.10%, NAB failed to pass on the cut. The decision by the banks gives the RBA some additional margin to cut further in a time when the economy is about to start the early phase of what is expected to be a short and sharp recession.
While all the banks have been under considerable funding pressure the majors have all come through this with a massive increase in market share as the expense of the second tier banks and the non-bank lenders. The majors now have easliy in excess of 90% market share and margins considerly higher then previosuly. Despite the rise of loan defaults the additional margins by the banks have given them a tremendous position of strength that few global banks share.
One thing is certain that the Australian banks are world leading and banks like ANZ who are looking to expand now into Asia are doing so from a position of strength that will setup growth for the next decade.
ANZ announce dividend cut, who’s next?
ANZ have been the first of the big four banks to announce a cut to their dividend as the banks start to feel some of the pain that has devastated the banking sector overseas.
ANZ announced a cut of 25% to their dividend which in direct response to rising corporate debt levels. This will reduce the annual dividend from $1.36 to a little over $1 and will save the ANZ approximately $500 million.
The announcement came as the ANZ delivered an update for the first four months of the reporting year revealing a update on their current operations.
The ANZ have boosted their provisions for bad and doubtful debts to between $2.4 and $2.5 billion, this is broadly in line with industry expectations. Cash earnings were up 18% on the same period last year but the increased impairment costs drove the cash earnings down 11%. ANZ revealed they have been a beneficiary of cash inflows as income growth grew 16%.
One point of note was the 125% increase in the Asian division which CEO Michael Smith has clearly identified as the future of the company. Although the Asian division is still only small the next couple of years will be pivotal in its Asian stategy and they will have to invest throughout the downturn to ensure building a viable market share.
So now the ANZ have cut dividends, who is next? The Commonwealth and Westpac have intimated they may need to cut but I suspect NAB will be next to the table flagging a cut. Either way the coast is now clear and expect all the banks to flag a cut between 10-30% in the coming weeks.
NAB reveal pain of economic slowdown
NAB provided a summary of their first quarter amid the toughening financial market that is affecting the globe. NAB announced a solid quarter but the result was most impacted by rising bad and doubtful debts.
NAB revealed bad and doubtful debts were $824 million for the quarter. NAB advised $521 million was for its exposure to three unnamed companies. Bad and doubtful debts for the fiscal year to 30 September was $2.49 billion.
NAB revealed its UK operations were still profitable but conditions had worsened. NAB has maintained tier 1 capital at over 8% revealing it’s solid capital position.