Most efforts by a creditor to collect a pre-petition debt (one that you owe as of the filing of your case) or to repossess your property without the permission of the bankruptcy court are violations of the automatic stay. If a creditor repossesses any property, such as your car, after you file for bankruptcy, the creditor must return the property to you.
NAB’s half year result was overshadowed by the large capital raising and announcement of the divestment of UK banking subsidiary Clydesdale Bank plc. To complete the strategic move NAB are raising ~A$6bn of capital (ie ~A$5.5bn accelerated rights issue + ~A$500m MLC re-insurance agreement) but almost half of it ($3.2 billion) will be held as protection against future potential legacy claims. This was a precondition to the exit as required by the UK banking regulators. Clydesdale is to be spun off under a holding company currently referred to as Listco”. The new entity will be ~75% owned by NAB’s own shareholders and the remainder ( 20-30%) sold to institutional shareholders through an initial public offering. NAB will realise a loss from the sale of the UK operations as proceeds will be less than the carry value.
From a debt and hybrid investors perspective, this move is a clear signal from the board they want to be proactive in managing the business back to a domestic focus. The raising will result in a sharp increase in common equity tier 1 (CET1) capital and asset quality will benefit from the transition away from the UK bank. This is a positive outcome for debt and hybrid investors and should alleviate any concerns that NAB might be considered the outliers in terms of balance sheet risk of the major banks.
From an earnings perspective, the half year cash profit was up 5% to A$3,320 million (statutory basis $3,460 million) driven by above average loan growth in housing (particularly investor mortgages). The group net interest margin was down slightly on the year to 1.92% but costs were well contained increasing by only 2.3%. Impairment charges ($455 million) were low at 0.16% of gross loans and the funding composition remained stable.
CBA’s cash earnings and statutory result came in at $2.2bn for the period as a result of home loans growing below average and business lending only in mid-single digits. Net Interest Margins were flat as a result of competitive pressures. Overall,the result was flat on the prior period and below the 3Q14 statutory profit of $2.3bn and also below market expectations which is why the share price has fallen (down ~15% from its peak). As we have flagged before, the increasing regulatory and compliance landscape is starting to take its toll on costs and volumes in retail and wealth channels. The average retail/wealth result is probably part of the reason why CBA chose to pass on only 0.20% of the 0.25% RBA cut to its mortgage customers (standard variable rates now sit at ANZ 5.38%, CBA 5.45%, NAB 5.43% and WBC 5.48%).
Asset quality was in line with expectation and ‘sound’ in the word of the Bank Loans in arrears were broadly flat but the Bank did reveal a quarterly impairment charge of $256 million (small on relative scale). Common equity tier 1 capital was up 0.20% to 8.7%, but unlike the other banks CBA appears comfortable with this level for now (but we will likely see action in the second half). Liquidity remained strong with the Bank reporting that is liquidity coverage ratio stood at 122%.
The huge growth in assets also came with a large increase (93%) in impairments and provisions to $467 million. This can be partially attributed to a higher collective provisions policy The significant commodites price decline over the past year caused a visible increase in provisions for the commodity and financial markets unit. It is unclear exactly the reason for this but the group reports the under performance of specific issuers.
The group outlook for MQG is always difficult due to their aggressive growth in balance sheet and history of acquisitions. The earnings from the annuity style business will continue but the poor impairment results from commodities exposure could get worse (albeit commodity prices appear to have stabilised). Overall, we remain positive on MQG’s operating model but we caution investors that the impact of the conglomerate regulation could alter the capital management strategy going forward.
The pessimists tend to be from the corporate and SME segments yet the big banks might want to rethink their approach to SMEs because the research indicates they’re the ones driving the recovery in borrowing demand as business borrowing intentions pick up. Other research by East & Partners indicates that the big end of town is depositing more while in the current survey 13.3 per cent of SMEs intend to borrow, up from 7.8 per cent at the same time last year.
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