HomeSide knocks NAB profit

By Phil Boeyen, ShareChat Business News Editor

Thursday 8th November 2001

Profit at Australia's largest bank, National Australia Bank (NZSE: NAB), has plunged although its New Zealand subsidiary has posted an improved result.

NAB's profit for the year ended September was down 36% to A$2.083 billion from A$3.239 billion last year, largely as a result of writedowns on its US HomeSide lending business.

Although the company made a net profit of A$1.681 billion on the sale of Michigan National Corporation during the year, this was offset by A$3.617 billion of writedowns at HomeSide, including writing off A$858 million of goodwill.

However CEO, Frank Cicutto, says results before significant items, such as the 10% improvement in cash earnings per share at 237 cents, represent a strong performance and demonstrates an underlying strength.

The bank's New Zealand business, Bank of New Zealand, contributed net profit of NZ$441 million, up 13.4% on last year's result. Net interest income grew 16.8%% to NZ$752 million.

"This growth was attributable to growth in core lending and deposit volumes. Net interest margins increased to 2.20%," NAB says.

Mr Cicutto says the outlook for the economic environment during the coming year is heavily influenced by the performance of the global economy, particularly the US.

"We expect conditions across all markets to be subdued during the first half of the financial year. Thereafter interest rate cuts and fiscal policy should help to stabilise global activity, with the main markets we operate in (Australia, New Zealand and the UK) doing better than most.

"However, if there is no recovery in the US by mid 2002, then conditions globally could deteriorate substantially."

Mr Cicutto says the bank expects the current momentum in its core retail banking and wealth management businesses to continue and they should deliver more than 10% cash earnings growth in the year ahead.

"Taking a cautious view of the outlook, we expect 2001/2002 group cash earnings growth per share of between 7% and 10%. This takes account of reduced earnings following the recapitalisation of HomeSide and the sale of Michigan National."

The bank also says it is continuing to actively seek out growth opportunities both by acquisition and by investing in core businesses.

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