Once again National Australia Bank Ltd (ASX: NAB) is in the spotlight for the wrong reasons.
This time it's the findings of the UK parliament's Treasury Select Committee which has thrust NAB into the financial media's crosshairs.
In an investigation into the sale of interest rate hedging products, today's Australian Financial Review quoted the Committee's chairman, Andrew Tyrie, as saying the internal review system of NAB's Scottish-based subsidiary, Clydesdale Bank, had "serious shortcomings."
NAB has been plagued by its foreign exposure for many years and in 2014 alone its, "legacy UK conduct related matters" accounted for some $1.4 billion in provisions. At the time, recently appointed CEO Andrew Thorburn described the results as "disappointing."
In total, NAB reported $2.9 billion in provisions throughout 2014. This included "operational risk event losses", employee entitlements, restructuring and miscellaneous costs.
Since taking office Mr Thorburn has sought to remove all non-core assets, including NAB's two UK banks, Clydesdale and Yorkshire, from its balance sheet. So far, he has successfully taken Great Western Bancorp (NAB's U.S. agribusiness bank) to the public market.
It is also believed he is actively considering floating Clydesdale Bank on a public market sometime in late 2015.
Should you buy NAB shares?
Total provisions for bad and doubtful debts reported by NAB versus rivals. Source: Company annual reports.
As is evident from the table above, compared to its peers, NAB's recent track record is very poor. It has been filled with huge provisions for bad and doubtful debts, despite a falling interest rate environment.
Therefore given its poor track record, recent rally in share price and the subdued economic outlook, investors would be wise to avoid NAB shares until it completely rids itself of its troubled international businesses once and for all. Whilst Mr Thorburn appears to be off to a good start, investors are advised not to hold their breath because many management teams have come and gone trying to do the same thing.
