NAB shares gain 2.7% even as its dividend is cut and FY19 profits fall

At the very least, no one can ever say that the stock market is boring.

The National Australia Bank (ASX: NAB) today cut its dividend, its FY19 profits fell and its capital ratio is currently below APRA’s ‘unquestionably strong’ requirement.

Even with all that considered, its share price still rose as much as 2.77% – to $28.57 per share – during the morning session.

Front-line financials in focus

Taking a more granular look at NAB’s FY19 results, we see that the bank’s cash profits (NPAT) came in at $5,097 million, down from $5,702 million from the year prior.

The bank’s cash earnings per share suffered in-step, hitting 182 cents per share, down from 210 cents per share in FY18.

Following the lead of ANZ and Westpac, NAB’s cash return on equity (ROE) also dropped, coming in 180 basis points lower than the year prior at 9.9%.

Secondly and unlike ANZ and Westpac, which both boast CET1 ratios ahead of APRA’s ‘unquestionably strong’ requirement, NAB’s FY19 results revealed that the bank currently lags behind APRA’s 10.5% capital benchmark.

Unsurprisingly, this fact was flagged by analysts in the wake of today’s full-year release, with UBS describing NAB’s current capital position as ‘concerning’. Here, the investment bank commented that NAB’s current CET1 ratio of 10.38% was weak – even when considering the $700 million dividend reinvestment plan, at a 1.5% discount, that the bank is pursuing.

Morgan Stanley is underwriting NAB's dividend reinvestment plan.

The NAB dividend

NAB has also joined Westpac in cutting its final dividend; though unlike ANZ the NAB dividend retains its 100% franking rate.

Specifically, the bank flagged an 83 cents per share final dividend – which brings NAB’s total dividend payments in FY19 to 166 cents per share.

Disappointingly for income-focused investors, this represents a 16% reduction from the year prior.

NAB share price: management commentary

Philip Chronican, who is set to be replaced as CEO by Ross McEwan on December 2, said of today’s results release, that:

'This year has been very challenging, requiring significant actions for us to deal with past issues and make real changes aimed at earning trust with customers and the community.'

Mr Chronican further added:

'We are now more than two years into our three year transformation. Becoming simpler and faster in delivering real benefits, allowing us to invest in better products and service as well as strong compliance and controls while holding FY19 expenses broadly flat.'

If markets are the true, efficient arbitrators of quality, maybe investors are well and truly convinced that the National Australia Bank is on its way to transforming itself.

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