Customer remediation costs pile on for NAB

NAB has accumulated remediation costs of $525 million post-tax in the first half leading up to March, although the total costs to be paid out from aligned, non-salaried wealth advisers are still to be realised.

The group incurred $325 million in remediation costs during in the six months leading up to March 2019, adding to its costs of $261 million in the prior half.

The costs have amassed in the fallout from the royal commission, with the bank listing issues with adviser service fees and the wealth advice review.

The total ongoing advice fees received by the group’s advice partnerships within the period 2009-2018 are estimated to be approximately $1.3 billion.

“The potential outcome and total costs associated with the adviser service fees matter remain uncertain,” NAB noted.

The bank saw lower revenue in wealth during the half. NAB’s corporate and institutional banking division experienced a 20.6 per cent fall in its earnings year-on-year, generating $638 million.

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The bank’s wealth earnings for the six months leading up to March sunk by 29.4 per cent from the prior corresponding period to $96 million.

The bank cited higher funding costs and lower margins for customers in both housing lending and wealth portfolios, combined with credit impairment changes.

NAB chief financial officer Gary Lennon said pricing was a factor in repositioning the wealth business, in adjusting to the market.

“Part of repositioning the business has been to have a good look at what is the appropriate level of fees to charge to really get the momentum of the business back,” Mr Lennon said.

“The clear choice was to rebase to become more competitive which will hopefully help the business grow again.”

Meanwhile NAB’s group profit for the half rose by 4.3 per cent from the prior corresponding period to $2.7 billion, with cash earnings up by 7.1 per cent to $2.9 billion, including the impact of customer remediation costs of $325 million and restructuring expenses of $530 million in the March half.

The bank also has cut its dividend to comply with capital requirements, dropping its shareholder payout by 16 per cent from the prior corresponding period, from 99 cents a share to 88 cents.

The bank has also admitted to disputes with Nippon Life in connection with the sale of MLC.

During the investor presentation on Thursday, Mr Lennon admitted there were disagreements over contractual agreements, but denied there was any “animosity” between the two organisations.

The disputes have arisen over agreements regarding the distribution of life insurance products and the continued use of the brand.

NAB has agreed to take actions to establish MLC as a standalone entity, such as “providing transitional services as well as support for data migration activities and the development of technology systems.”

During the half, there was a decrease in statutory profit of $28 million ($19 million after tax), due to MLC Wealth divestment transaction costs.

The outcome of the discussions and resulting costs remain “uncertain”, the bank said.

Operating income from fees and commissions also decreased by $13 million or 1.2 per cent, which NAB said was largely driven by lower fee income from consumer banking and wealth, and from an ongoing shift in customer behaviour towards digital transactions in business and private banking.

The bank is still on the search for a new boss, after former chief executive Andrew Thorburn resigned from the group in March.

Interim chief executive Philip Chronican will take over from chairman Dr Ken Henry, once the bank appoints Mr Thorburn’s replacement.

Customer remediation costs pile on for NAB
NAB
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