I think we can expect the news flow from the National Australia bank to start changing from pressure from COVID-19 to pressure to cut costs and job cuts, judging by the third-quarter trading update on Friday.
The update showed that the NAB’s third-quarter cash earnings fell 7% to $1.55 billion from a year ago thanks to what the bank said were early signs of deterioration in credit quality.
On Wednesday the Commonwealth Bank revealed an 11% drop in cash earnings for the 2019-20 year, with the fall concentrated in the June half-year when the pandemic hit hard.
As a result, the bank warned it would be “increasingly challenging” to hit its target on costs management – that’s ‘management speak’ for looming job cuts.
NAB said revenue rose due to higher income from trading activity in its markets and treasury areas.
But to justify its cost concerns, it claimed that excluding these factors, lower interest rates were starting to weaken its profit margins.
Credit impairment charges of $570 million during the quarter were higher than the same quarter last year, but lower than the previous June quarter when it took a large provision for COVID-19-related bad debts.
Amid a series of restructures that are set to result in job losses, NAB’s expenses rose 2%, and it said achieving a target to keep expenses broadly flat looked “increasingly challenging”, in part due to the extra staff needed to support customers.
CEO Ross McEwan said the result reflected the environment for banks, characterised by market volatility, low-interest rates and credit growth, worsening asset quality, and pressure on costs.
“We have a clear plan for NAB and we are getting on with it, including quickly embedding our new operating model and creating clear accountabilities,” Mr McEwan said.
Since April, Mr McEwan has been driving a series of restructures that are expected to result in job losses across the bank.
NAB though remains in top condition.
Its NAB’s common equity tier 1 capital was a strong 11.6% of risk-weighted assets at September 30 (APRA requires 10.5%), after it raised $4.25 billion in new equity from shareholders early this year.
The bank also said operational separation of its wealth arm MLC from the bank was “substantially achieved” in July, and it is still considering the sale of MLC, alongside a potential float.