The National Australia Bank has joined the ANZ in cutting interim dividend by 25% to conserve capital.
The cut was part of the NAB’s long-mooted new strategy launch that was released yesterday.
The bank says it will focus more on Australia, but won’t sell its banks in the UK or the US.
That stance is in contrast to that of the ANZ which says it’s determined to build a bigger presence in Asia.
To that end it has been a rumoured buyer of the Asian assets the Royal Bank of Scotland, now controlled by the UK Government, is looking to sell to raise much needed cash.
NAB’s interim pay-out will be slashed to around 77 cents a share when it next reports in six weeks time. The current interim is 97 cents a share.
That will save the NAB just under $420 million a year if the cut is limited to the interim payout.
The ANZ is looking at saving half a billion a year from its cut.
The bank also said it will retain its UK operations because its international businesses are proving resilient despite the difficult economic climate.
The shares finished up around 2.6% or 43 cents at $16.73 after peaking at a day’s high of $17.10.
The fall from the morning through the afternoon was steady as investors realised the UK banks would be held, despite the worsening economic and business outlook there.
Some investors wanted to see job cuts, but that was probably the last thing the NAB, or any other bank would want to announce at the moment as the Australian taxpayer contributes to subsidise their borrowings and guarantees assets.
Lending to big business in Britain and North America will be ended, the troubled institutional banking business (source of much of the dud loans and poor offshore deals) will be broken up, and corporate lending will be brought into the Australian banking business.
Competition has contracted dramatically as well and the big four are now accounting for around 90% of all banking in the country and nearly 100% of home lending.
In the strategy update, new NAB chief executive Cameron Clyne made the restructure and break up of its nabCapital division the centre piece of the revamp..
"As part of maintaining conservative settings, and reflecting the increasingly challenging external environment, (the) dividend will be reduced by approximately 25 per cent for the 2009 half year," NAB said in a statement.
"The main business priorities are to develop NAB’s Australian franchise by growing the business bank, leveraging recent investments in the retail bank and continuing to pursue opportunities across the wealth management value chain.
"The international businesses are proving to be resilient under difficult market conditions.
"We remain committed to the United Kingdom business."
The small rural bank in the US will also be kept.
Analysts were surprised the bank did not announce job cuts and the sale of the UK operations as had been suggested a week or so ago.
The retention of the UK banks was tipped in several well-briefed stories Thursday morning before the announcement.
The bank did flag “progressively accelerating cost initiatives” without mentioning job cuts in the strategy statement and briefing.
In fact there’s a hint of job cuts among upper levels of the bank’s management in the wake of changes in structure yesterday.
Job losses look likely as well in nabCapital where some businesses were described as not been strategic. The controversial off balance sheet ‘conduit’ which holds a couple of billion of dodgy assets will be wound down and quit.
Mr Clyne said “The world is moving into a recessionary cycle at a speed that was not anticipated six months ago.
“We are potentially in for a long period of de-leveraging by households and companies.
"There is a wide range of possible outcomes for all of our markets. Our strategy must be flexible enough to accommodate such a degree of uncertainty.”
Clyne took over as CEO from John Stewart at the start of this year.
The bank said last month earnings in the three months to December 31 steadied to $1.1 billion as provisions for bad corporate loans rose 19% from the previous corresponding quarter.
Mr Clyne’s global economic outlook was downbeat as he noted the world was moving into a recessionary cycle at a faster than anticipated speed.
"There is great uncertainty around the timing and speed of an eventual recovery," he added.
The move by governments and central banks around the world to prop up business and consumer confidence was unprecedented and it was not yet clear how the actions will pan out, particularly on the regulation front.
"Some industry trust has been lost," Mr Clyne said.
"How consumers will respond, as their confidence returns, is not yet clear.
"We are potentially in for a long period of de-leveraging by households and companies."
The NAB said this week in its latest monthly business survey that it expects the economy to fall by 1%, with unemployment rising past 7% and interest rates falling to around 2%.
There’s good and bad news in those forecasts for the banking side of the NAB, especially the forecast for more job losses, which will mean more bad debts. It’s the unfortunate reality of where we are today.
