By Robb M. Stewart
MELBOURNE, Australia-- National Australia Bank Ltd. moved to
shore up its capital base, unveiling a 5.5 billion Australian
dollar (US$4.4 billion) rights issue that will help the lender make
a clean break from its troubled U.K. business.
The plan is Chief Executive Andrew Thorburn's latest effort to
narrow a return-on-equity gap with NAB's main rivals by withdrawing
from international operations to focus on core franchises in
Australia and New Zealand.
Mr. Thorburn, who took over the reins in August, said Thursday
that his priority was to exit from the U.K., where NAB owns
Clydesdale Bank and Yorkshire Bank. While remaining open to a trade
sale, Mr. Thorburn said his aim for now was to spin off as much as
80% of the U.K. operation to NAB shareholders and sell the rest
through an initial public offering by year-end.
Capital raised from the 2-for-25 accelerated rights issue would
facilitate the exit, by providing a buffer against potential losses
related to legacy misconduct allegations for wrongly selling
certain financial products--an issue that has dragged on the U.K.
business's recovery from the country's recession.
The U.K. prudential regulator has called on NAB to inject GBP1.7
billion (US$2.6 billion) in capital before listing the business to
cover possible losses, and the remainder will shore up NAB's own
capital reserves, the bank said.
The rights issue will help NAB lift its capital-reserve ratio
above that of its peers, at a time when regulators at home and
globally are calling for big banks to raise their buffers against
the risk of economic crises.
The bank said it expects to release a further A$500 million in
capital by reducing the exposure of its wealth-management division
to possible life-insurance claims through a reinsurance arrangement
with an unnamed global provider.
Australia's major banks emerged from the global financial crisis
relatively unscathed, shielded by years of uninterrupted growth in
Australia. More recently, they have benefited from record-low
interest rates that have encouraged borrowing and reduced default
rates.
Still, NAB has lagged behind the earnings growth and share-price
performance of its peers, partly due to its less profitable
international businesses. And like all of Australia's big lenders,
NAB is facing pressure on margins due to intensifying competition
for loans in the low-interest-rate environment, and from increasing
regulatory scrutiny over speculative-mortgage lending.
Separately, NAB reported a 20% jump in first-half net profit to
A$3.44 billion in the six months through March, from A$2.86 billion
a year earlier. In line with rivals, NAB said its net-interest
margin contracted slightly in the half year.
Still, revenue was up and expenses were broadly flat after
stripping out a fine paid in the U.K. for how the British business
dealt with customer complaints over the wrongful sale of
payment-protection insurance.
Also, the company said Chairman Michael Chaney planned to retire
in December following a decade in the role. He will be succeeded by
Ken Henry, a former treasury secretary and ex-central-banker who
joined NAB's board about four years ago.
Since taking over from CEO Cameron Clyne, Mr. Thorburn has put
in place a new leadership team, sold GBP1.2 billion in higher-risk
U.K. commercial-real-estate loans, and pulled out of the U.S. with
the staged sale of regional lender Great Western Bancorp Inc.
Last week, NAB said it could raise as much as US$495 million by
selling another bundle of shares in Great Western, which it floated
on the New York Stock Exchange last year.
Write to Robb M. Stewart at robb.stewart@wsj.com
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