The National Australia Bank Ltd (ASX: NAB) share price will be on watch this morning after the release of the banking giant's half year results.
Here's how NAB performed in the first half of FY 2019 compared to the prior corresponding period:
- Cash earnings increased 7.1% to $2,954 million.
- Cash earnings (excluding restructuring-related costs & customer-related remediation) down 0.3% to $3,279 million.
- Diluted cash earnings per share up 3.7% to 102.5 cents.
- Cash return on equity up 30 basis points to 11.7%.
- Interim dividend cut by 16.2% to 83 cents per share.
- CET1 ratio of 10.4%.
What were the drivers of this result?
The company's key Business & Private Banking segment posted a 1.3% decline in cash earnings to $1,462 million during the first half. This was due to a higher investment spend and credit impairment charges offsetting strong revenue from good SME lending growth.
The Consumer Banking & Wealth segment was a major drag on its performance during the half, posting a 20.6% decline in cash earnings to $638 million. Above system housing lending growth was offset by lower margins, higher credit impairment charges, and lower Wealth revenue.
The bank's Corporate & Institutional Banking segment was a reasonably positive performer, growing cash earnings by 0.4% to $781 million. Good growth in non-markets revenue was largely behind the increase in cash earnings.
Finally, the New Zealand Banking segment was the star performer with a 7.7% lift in cash earnings to NZ$532 million. This was driven by increased revenue, higher margins, and strong growth in both housing and business lending.
Overall, unlike the better than expected Australia and New Zealand Banking Group (ASX: ANZ) result on Wednesday, this result appears to have fallen short of the market's expectations.
The dividend.
Management advised that its interim dividend was reduced by a sizeable 16% to 83 cents per share due to the difficult operating environment and its need to improve capital generation.
This appears to have been a much larger cut than the market had anticipated, which I suspect could weigh on its shares today.
A note out of Goldman Sachs reveals that it was expecting a cut to 89 cents per share, whereas recent notes from Ord Minnett, Credit Suisse, and UBS indicated that they were expecting a 90 cents per share interim dividend.
Should you invest?
Whilst the size of the cut to its dividend is very disappointing, it does leave the bank with a much stronger balance sheet.
I wouldn't rush into an investment today, but when the dust settles it could be worth revisiting. Until then, my preference remains with ANZ.
