National Australia Bank has warned of a 14 per cent drop in cash profits ahead of its full year result on October 30.
The lender’s troubled UK operations have significantly weighed on cash earnings. Profit for the year to September 30 will be in the range of $5.1 to $5.2 billion, down from last year’s $5.94 billion.
In an ASX statement yesterday, NAB chief executive Andrew Thorburn said that reporting larger UK conduct charges and impairments is “disappointing”.
“Taking these decisions gives us more clarity going into the future and allows us to focus on the core Australian and New Zealand franchises, which remain in good shape,” Mr Thorburn said.
“NAB is committed to including these types of adjustments within cash earnings now and in the future,” he said.
“Our leadership team is focused on delivering a better customer experience, and through this an improved performance of the bank.”
The UK charges include additional provisions of $605 million in relation to Payment Protection Insurance (PPI).
“Dealing with conduct matters continues to be a significant and ongoing issue for the UK banking sector generally and there remains a wide range of uncertain factors relevant to determining the total costs associated with conduct-related matters, including any possible fines,” NAB said in an ASX statement.
“The increased conduct provisions are adequate and appropriate based on the information available to us today as part of our year-end review and financial close process,” it said.
In addition, following an annual impairment assessment of capitalised software, an impairment charge of $220 million will be taken against individually significant assets, predominantly in the wealth and Australian banking businesses as well as other smaller assets in the UK and New Zealand.
Part of these charges includes $74 million for certain assets related to NAB’s NextGen software platform.
Regulatory and business model changes in the USA have also cost the bank $132 million in deferred tax assets (DTAs).
Finally, NAB has reviewed its accounting policy for tax offsets.
R&D offsets will now be recognised as a reduction to the related software expense or carrying value of software assets, as this better reflects the true cost of software development.
“The impact of the change is a $68 million increase in tax expense, a $40 million decrease in operating expenses, a $40 million reduction in software assets and a $12 million decrease to the Deferred Tax Liability,” the bank said.
The net impact to cash earnings after tax is a $28 million decrease, it said.