Well, it wasn't pretty. The Royal Commission into Finance and Banking's final report was released on Monday and it was scathing.
AMP Limited (ASX: AMP) has already been referred to the Department of Public Prosecutions to face possible criminal charges and it looks as though the National Australia Bank Ltd. (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) may also face referral.
NAB singled out; CEO faces fallout
NAB was singled out for special criticism, however, with the commissioner saying that he was "not persuaded that NAB is willing to accept the necessary responsibility" for the serial misconduct that has plagued the business operations of the bank. The NAB CEO Andrew Thorburn has reportedly cancelled planned leave in order to deal with the fallout and NAB's brand and credibility has taken a huge battering. Investors seem to have been relieved that it wasn't worse though, with the NAB share price sharply rising today, up almost 5% since the report was released.
Although the damage bill has been massive ($360 million so far) and will likely affect the bank's bottom line for years to come, shareholders seem to agree the worst is over.
I would agree. The bank's conduct has been appalling, but NAB's business model is one of the strongest in Australia. As one of the 'Big Four' banks, NAB enjoys massive economies of scale and formidable market pricing power. NAB also has a substantial market share in the business banking sector, with 45% of its earnings stemming from business credit operations, giving NAB a unique position to benefit from any recovery in demand for commercial loans. This also provides a buffer against any softening in the housing market.
Exposure to risky debt that plagued the bank during the 2008 financial crisis is no longer a threat to NAB's fundamental stability and high-quality assets, stable interest margins and robust loan growth gives NAB both a strong buffer against any future economic headwinds and a promising outlook going forward.
Foolish Takeaway
Looking at NAB's dividend alone, I believe the bank is looking extremely attractive both from a value and yield perspective and still would be a solid base for any income-based portfolio. Although the NAB share price is unlikely to recover substantially in the near-term, I believe the bank's sound capital, modest credit growth, and high profitability indicate a sustainable dividend yield into the future.
