Considering the massive losses other financial institutions have taken around the world over the past 12 months, NAB's -10.7% drop in cash earnings for FY08 looks very respectable. However, of more interest is the outlook going forward and on that score NAB expects continued deterioration.
Measured half on half NAB profit fell -25% in 2H08 from the 1H08. You can put a lot of that down to the pre-announced losses on CDO's that added up to close to a billion dollars reflected in the sharp increase in provisions shown above. Also not mentioned in any reports I saw was that NAB's tax rate fell to 21% in second half from 27% in the first half. If NAB had the same tax rate in the second half , that would have sliced a further $150m from the bottom line.
On the outlook going forward NAB painted a sobering picture:
Economic conditions appear likely to continue softening well into 2009. The combination of the much higher prices for oil and other commodities seen in recent years with the higher cost and reduced supply of credit represents a sizeable adverse shock to the global economy. The reduction of household sector wealth flowing from sharply lower equity prices and widespread falls in house prices weighs further on economic prospects.
Once again there is no denying that NAB is doing comparatively better than it's global peers, but in an environment of rising bad debts and a slowing in credit growth to businees and households, the outlook for bank profits remains muted at best.
However, if forecasts of 9% earnings growth can be met for next year, the current dividend yield of over 8% looks very attractive, especially as interest rates continue to come down. That is of course if you believe those earnings forecasts, right now that is not a bet I am willing to make.