NAB report rattles OZ banks

Just over three weeks ago global credit rating agency Fitch downgraded the big four Australian banks' credit rating to A+ with a “negative” outlook, due to risks of rising bad debts and lower profits and came following a warning by banking watchdog APRA, that banks should cut dividend payments until there is more certainty surrounding the impact of COVID-19.

This morning, those worst fears were confirmed as NAB took the unusual step of reporting its results almost a fortnight earlier than scheduled. The key details of the report included a 50% first-half earnings dive to $1.46 billion, the dividend cut to 30c a share from .83c a year ago, and a $3.5 billion capital raising through an institutional placement and share purchase plan.

The largest contributor to the plunge in profit was a $1.2 billion provision to cover bad debts with more than $800 million directly attributed to the fallout from the pandemic. If raising capital on one hand and electing to pay a dividend with the other, seems a contradiction, the decision appears to take into account half of NAB’s shareholders are retail investors, many of whom are retirees and depend on the regular dividend payments from the big banks to fund their retirement.

The situation doesn’t bode well ahead of ANZ and Westpac’s half-year reports due to be delivered next week. Not prepared to take any chances ANZ was trading -2.5% at the time of writing at $15.61, while Westpac was down over -3.5% trading near $14.78.

The price of the NAB placement is pitched at $14.15, an 8.5% discount to NAB’s closing price last Friday, almost $13.00 or below where it was trading in late February and below where it was trading during the darkest hours of the Global Financial Crisis excluding dividends.

While the NAB placement appears to be pitched at an attractive price we can’t see any technical evidence to confirm that a near term low is in place. Instead the ability of the share price to rally from here is reliant on how quickly the economy rebounds from the COVID-19 pandemic.

Source Tradingview. The figures stated areas of the 27th of April 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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