National Australia Bank Ltd (ASX:NAB) shares rise despite $314 million profit hit

The National Australia Bank Ltd (ASX:NAB) share price is on the rise today despite announcing a $314 million profit hit…

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It has been a positive day of trade so far for the National Australia Bank Ltd (ASX: NAB) share price.

In morning trade the banking giant's shares are up over 1% to $25.78 despite announcing additional costs for customer remediation matters.

What are the costs?

This morning the bank announced additional costs of $314 million after tax in relation to its customer remediation program.

These costs will reduce second half FY 2018 cash earnings by an estimated $261 million and earnings from discontinued operations by an estimated $53 million.

Management has advised that approximately 69% of these costs will impact revenue, with the balance reported in expenses.

It has warned that these customer remediation programs are expected to continue into FY 2019, with potential for further costs down the line.

According to the release, the additional costs are primarily in relation to several customer remediation matters that include:

  • Refunds and compensation to customers impacted by issues in its Wealth business, including advisor service fees, plan service fees, the Wealth advice review, and other Wealth related issues
  • Costs for implementing remediation processes.
  • Other costs associated with regulatory compliance matters.

The bank's CEO, Andrew Thorburn, stated that: "Where we have let customers down we are determined to put things right. We have made good progress in resolving a number of issues that impacted our customers and we want to compensate them as quickly as possible."

The good news is that the bank remains well positioned to meet APRA's unquestionably strong benchmark "in an orderly manner" by January 2020.

What now?

I suspect that investors were anticipating this news and had priced in even greater costs, hence why its shares are on the rise today.

While I'm not a big fan of National Australia, its shares do look reasonable value at this level. However, my preference remains Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) for valuation and yield reasons.

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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