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National Australia Bank posts record second-half profit
By Stuart Kelly Bloomberg News / Published: November 11, 2007
SYDNEY: National Australia Bank, the biggest in the country, posted a record second-half profit as lending increased in an economy that has entered its sixteenth consecutive year of expansion.
Net income climbed 1.8 percent to 2.44 billion Australian dollars, or $2.26 billion, in the six months ended Sept. 30 from a year earlier, the company said Friday. It also tapped demand for loans in Britain, where it earns almost 20 percent of its profit.
National Australia is the third of the banks in the nation to post record earnings in the past two weeks, dodging the subprime mortgage crisis that cost U.S. financial institutions more than $40 billion. Australian banks are increasing lending at the fastest pace in 18 years as the nation benefits from the longest run of jobs growth since 1995.
"The numbers look good across the board, and I don't see any obvious red flags," said Troy Angus, who helps manage 4 billion dollars at Paradice Investment Management, including National Australia Bank shares, in Sydney. "We liked the bank's confidence in keeping costs lower."
The bank's chief executive officer, John Stewart, declared a second-half
dividend of 95 cents a share, up from 84 cents a year earlier, and forecast
costs to remain within inflation to 2010. Annual profit of 4.58 billion
dollars beat the 4.36 billion dollars median estimate of 15 analysts surveyed
The company's stock fell as much as 17 percent from a May 7 record on concern the global credit shakeout would push up funding costs. National Australia recovered more than half of that decline since September as Stewart assured investors that the bank has not invested in U.S. subprime mortgages.
Limited holdings in such loans, the small size of the local nonbank home financing industry and lower bad debts relative to global peers enabled Australian banks to shrug off higher funding costs, the central bank said in September.
National Australia's earnings in Britain climbed 14 percent in the year through September as the bank increased customers by 7.4 percent. Earnings of British banks may be hurt as the subprime shakeout has pushed up funding costs, sparking a run on Northern Rock, the first for a British bank in 140 years. Royal Bank of Scotland and Barclays may write down ?2.1 billion, or $4.4 billion, in the second half because of the collapse of credit-related securities.
"I'm very satisfied with 14 percent, which compares very well with other banks in the U.K.," Stewart said. "It's one of the best performances among any bank in the U.K. and it will continue to get better."
National Australia owns Yorkshire Bank and Clydesdale Bank in Britain, where it has hired local business leaders to help new branches in the south sell mortgages and deposits to business owners and wealthy individuals.
The bank expanded total lending 13.8 percent in the 12 months, while deposits grew 15.2 percent amid the biggest credit boom in Australia since 1989.
Australian banks' lending to households and businesses rose 16.2 percent in the 12 months ended Aug. 31, the fastest pace since October 1989, according to central bank data.
"The banks have posted reasonably good results because domestically there's still a lot going their way," said Michael Birch, who manages the equivalent of $146 million, including bank shares, at Wallace Funds Management in Sydney. "National Australia is different because there's a notable overseas angle to their earnings and that's what the market is looking at."
National Australia's cost-to-income ratio, a measure of profitability, improved to 50.8 percent from 54.5 percent a year ago. Net interest margin, the difference between what the bank earns from loans and pays to hold deposits, fell to 2.45 percent from 2.57 percent.
Earnings from the bank's Australian businesses rose 22.8 percent, driven by growth in managed funds and a 6.1 percent increase in retail deposits.
Funds under management climbed 17 percent to 110 billion dollars as pension savings in the nation exceeded 1 trillion dollars for the first time in June, and the benchmark S&P/ASX 200 index climbed 27 percent in the period.