November 2, 2017 / 1:49 AM / a year ago

UPDATE 3-National Australia Bank breaks profit record, plans headcount drop

* Flags 6,000 job cuts

* Increases cash profit by 2.5 pct to A$6.64 bln

* Global banks cutting costs as digital services improve

* High restructuring costs prompt share price fall (Adds CEO comments, union response to cuts, fund manager quotes)

By Paulina Duran and Jonathan Barrett

SYDNEY, Nov 2 (Reuters) - National Australia Bank Ltd (NAB) flagged thousands of job cuts as it posted a record annual cash profit on Thursday, joining a push by global lenders to do more business online and less transactions over polished bank counters.

The 2.5 percent rise in profit to A$6.64 billion ($5.1 billion) comes amid a broader sector drive to improve margins, cut costs and hoard cash in response to regulator-imposed changes to capital requirements.

Though a record profit, the small rise marks a consecutive year of modest growth and contrasts with the regular double-digit increases of just a few years ago.

Australia’s largest business lender said it expected to cut about 6,000 staff over the next three years as it automates its business, while creating 2,000 positions over the same period. A net loss of 4000 jobs represents about 12 percent of its current workforce.

It flagged restructuring charges of A$500 million to A$800 million in the first half of fiscal 2018, and a spike in expenses of 5 percent to 8 percent over the year.

NAB Chief Executive Andrew Thorburn said some of the cuts were aimed at the business and high-end private banking divisions.

“Those two businesses are the customer facing businesses,” Thorburn told reporters on Thursday.

“As we simplify the bank, as transactions move more and more ... to digital channels we would progressively need less people in certain areas.”

The aggressive restructuring comes amid a global push by banks to eke out better returns through tight control of costs and replacing staff with improved technology.

The Nordic region’s biggest lender, Nordea Bank AB , said last week it would cut at least 6,000 jobs as automated processes took hold.

Julia Angrisano, national secretary of the Finance Sector Union of Australia, said employees were paying the price for cost controls.

“Detail is light on how the bank has determined that 6,000 jobs are to be cut, and where and when,” Angrisano said in a statement.


UBS analysts described the NAB result as “solid” while noting that the restructuring costs were higher than expected and would weigh on market sentiment.

NAB shares were down 3 percent in afternoon trading on Thursday in a flat market.

The bank released an upbeat outlook, underpinned by an anticipated upswing in business investment and government infrastructure spending, raising questions among analysts and investors whether it was too optimistic.

“There’s a justified scepticism about them meeting their targets,” said Greencape Capital portfolio manager Matthew Ryland.

CLSA banking analyst Brian Johnson said it was not clear whether the bank could deliver on its restructuring objective “towards” having a cost-to-income ratio of 35 percent and the best returns of the country’s major banks.

NAB’s positive outlook contrasts with that of rival Australia and New Zealand Banking Group Ltd, which has said finding revenue growth was getting harder.

While NAB’s net interest margin, a key gauge of profitability, fell 3 basis points from last year, it was 6 basis points higher in the second half of the 2017 results, as the lender benefited from repricing its mortgage book.

Interest rate levels have become a hot-button political and customer issue in Australia this year, with the corporate regulator pledging to investigate whether banks are using a push to curb a potential housing bubble as an excuse to profiteer through unnecessary mortgage rate rises.

NAB declared a final dividend of A$0.99 per share, the same as last year. It said statutory net profit rose to A$5.29 billion from A$352 million from the previous year when it took a one-off charge related to the sale of its British business.

($1 = 1.3033 Australian dollars)

Reporting by Paulina Duran and Jonathan Barrett; Additional reporting by Rushil Dutta; Editing by Stephen Coates

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