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http://www.theage.com.au/business/nab-turns-in-flat-result-for-december-quarter-20100219-olx1.html

NAB turns in flat result for December quarter
DANNY JOHN
February 20, 2010

THE growing divide between the biggest and smallest of the big four banks was underlined yesterday when National Australia Bank revealed that increasing competition and flat revenue growth had blocked any immediate profit improvement as the global financial crisis faded.

NAB unveiled unaudited cash earnings for the December quarter of $1.1 billion - a mirror image of the profit outcome for the corresponding period a year ago.

The flat result left investors distinctly unimpressed. They had expected better numbers following the recent sizeable earnings gains made by the country's two largest banks, Commonwealth and Westpac.

CBA's surge during its first half, which included the same period as NAB's first quarter, took its interim net profit to a record $2.9 billion while Westpac's quarterly year- on-year earnings to December 31 jumped 33 per cent to $1.6 billion.

Both banks reported large falls in bad debt as lending grew, led by the housing market. NAB's bad debts were also down, with sour loans dropping $202 million since September 30.

While analysts yesterday indicated that NAB was on target to turn in a half-year net profit of $2.2 billion, there was general agreement that any earnings growth was likely to be the result of lower provisions, not increased revenue.

Describing the underlying revenue trend as ''disappointing'', Goldman Sachs JBWere said the lack of revenue growth remained a concern.

IG Markets institutional dealer Christ Weston said the figure was ''not necessarily a weak result'' but it was not as strong as Westpac's. ''They've been built up quite heavily because they've been riding on the coat-tails of Westpac, and Westpac is in the strongest position of the big four,'' he said.

The market responded with a 70? sell-off of NAB's shares, which closed 2.7 per cent lower at $25.25 compared with a 0.43 per cent fall in the S&P/ASX 200 Index.

Both CBA, down 19? at $52.81, and ANZ, 9? lower at $21.96, dropped in line with the overall market but Westpac, whose shares have gained 10 per cent since its trading update, rose another 7? to $25.46. ANZ will outline its first-quarter performance next week.

NAB said its total revenue and net interest margins remained broadly stable compared with the second half of 2009 when the effects of the GFC and an accompanying rise in bad debts were at their highest.

But chief executive Cameron Clyne disclosed NAB's ability to push through better pricing for risk - and therefore improved margins - on its loan books, particularly in its key sector of business lending, had been eroded by greater competition.

In particular, he said foreign banks, which had largely withdrawn from the market because of the crisis, were lending again. Revenue from business banking grew nevertheless.

The bank's personal and retail division suffered a fall in operating income as its moves towards more fee-free accounts, and holding the increases in its mortgage rates below that of its main competitors put pressure on margins.

The group also saw improvements in wealth management as a result of the recovery in investment markets and its acquisitions of Aviva Australia and the private wealth arm of JBWere.