NAB to raise $3.5 billion as earnings dive

NAB to raise $3.5 billion as earnings dive

National Australia Bank (ASX: NAB) will raise $3.5 billion and slash its interim dividend to manage through the economic downturn caused by Covid-19.

The raise, which includes a $3 billion institutional placement and a non-underwritten share purchase plan to raise $500 million, will give the big four bank a cash buffer to assist with credit losses.

NAB's announcement comes in conjunction with the release of its 1H20 financial results demonstrating a dive in cash earnings of more than $1 billion, equating to a 51.4 per cent drop year-on-year. 

The fully underwritten placement will be undertaken at a fixed price of $14.15 per share, representing an 8.5 per cent discount to NAB's last closing price on 24 April of $15.46 per share.

Approximately 212 million new shares will be issued, representing 7.1 per cent of NAB's existing ordinary shares on issue.

The bank has also reduced its interim dividend to 30 cents per share in light of the uncertain economic outlook due to Covid-19.

"We are taking decisive action to manage the rapid and unprecedented upheaval caused by Covid-19 while at the same time being clear about our long term strategy for NAB," says NAB CEO Ross McEwan (pictured).

"Our priority has been supporting our customers and colleagues with a range of measures to help deal with the impacts of the crisis.

"Together with significant relief provided by governments and regulators, these actions bolster the resilience of our customers, our bank and the economy to adapt during this difficult period and to recover as quickly as possible."

The bank is entering this raise from a reasonably strong liquidity position; at 31 March 2020 NAB had a group Common Equity Tier 1 (CET1) ratio of 10.38 per cent, close to the 10.5 per cent benchmark the Australian Prudential Regulation Authority considers "unquestionably strong".

Post-raise NAB expects to increase its pro forma CET1 ratio to 11.2 per cent.

NAB says the impact of Covid-19 has been reflected at a group level, with statutory profit for the half down 37.6 per cent to $1.3 billion compared to a $2.1 billion profit at the end of 2H19.

Revenue decline by 4.4 per cent during the half compared to 1H19 reflecting market-to-market losses the liquids portfolio within its Markets and Treasury business.

"We entered this challenging period in a robust position, with capital, funding and liquidity significantly strengthened over recent years," says McEwan.

"However, given the uncertain outlook, we have taken proactive steps to further strengthen our balance sheet."

NAB and the other major Australian banks have played an important role thus far in the national response to the Covid-19 economic crisis, having provided bridging finance to struggling small businesses and deferring loan repayments for six months for all businesses hit by Covid-19.

Looking forward NAB intends to streamline its products and processes, particularly in home and business lending, to make things easier for its customers.

NAB will also be accelerating the separation of MLC Wealth as a priority with good momentum already underway to ensure the business is well positioned on a standalone basis for divestment.

The bank has also announced two appointments to its executive leadership team today, with Rachel Slade being appointed as Group Executive Personal Banking and Nathan Goonan being appointed as Group Executive Strategy and Innovation.

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