NAB turnaround to take time

National Australia Bank, despite reporting a healthy operating profit for its wealth management business, has ended an otherwise tough year on a bad note after today reporting a significant fall in cash earnings for 2004.

NAB chief executive John Stewart described the bank’s 15 per cent decline in cash earnings to $3.46 billion, and 19.7 per cent drop in net profit to $3.18 billion, as a “poor result” and “unacceptable for the National and its shareholders”.

Stewart suggested it could take another two years for earnings growth at Australia’s largest bank to return to acceptable levels.

Having been given a leg up from a more benign investment market, the bank’s wealth management division recorded a net operating profit of 9.4 per cent - but that’s were the good news ended.

Cash earnings for NAB’s retail banking operations were down 9 per cent while earnings for corporate and institutional banking dropped significantly by 29.5 per cent. The bank’s performance was worst in Europe where cash earnings for its retail banking ventures deteriorated 33.3 per cent.

Although stating that the National had learnt from its past mistakes, Stewart said he didn’t expect things to improve until the second half of 2006, predicting results could be worse in the first half of 2005 when they will “decline to bottom”.

“Dealing with the poor practices in the past and new business initiatives in each region will contribute to improved performance over time,” he said.

“However, much of the expenditure is locked in and it will take time before the results of the changes to our processes and improvements to service levels take effect.”

Stewart said the primary drivers of the bank’s dismal performance were flat revenue and unsustainable cost growth.

“In simple terms, cash earnings fell because we have been carrying too much baggage.”

Stewart said the result also represented deeper problems entrenched in the bank for years including a complex and costly cost structure, restrictive policies and practices, poor compliance processes and a lack of clear cultural framework.