National Australia Bank (ASX: NAB) was the first bank which was taken to court by Australian Securities and Investments Commission (ASIC) over fee for no service breaches. ASIC sued NAB for charging superannuation client’s fees for services which were not provided.
ASIC pursued civic penalties against NAB's NULIS Nominees and MLC Nominees for misleading customers of MLC MasterKey Super products, in which around $33 million in plan service fees was charged from the accounts of 220,000 members of MLC MasterKey Business and MLC MasterKey Personal Super when those accounts were not linked to a plan service provider. NULIS has already repaid customers $35.9 million. On July 26, 2018, it announced that it would provide further remediation totaling $87.1 million.
On 16 October 2018, National Australia Bank (ASX: NAB) announced additional costs of $314 million post-tax in relation to the customer remediation program. It is expected that due to these additional costs, the cash earnings in the second half of FY 2018 will decline by around $261 million and discontinued operations earnings will decline by around $53 million. NAB’ shares were almost unaffected by this news release, as the shares uplifted by 0.157 percent as on 16 October 2018.
These additional costs are related to the refunds and compensation to customers affected by issues in NAB’s Wealth business, including advisor service fees, the Wealth advice review, plan service fees and other Wealth-related issues. As per the company’s announcement they are trying to compensate the customers as soon as possible.
As per the announcement made by the company, around 69 percent of these costs will impact revenue, with the balance reported in expenses. These additional costs are going to be excluded from the FY 2018 expense growth guidance of 5-8%. Costs associated with responding to the Royal Commission are not included in these additional charges.
It is expected that these customer remediation programs will continue in FY 2019 and there is a potential for further additional costs which are uncertain at this point in time. These customer remediation programs are expected to continue into FY 2019 and there is a potential for further additional costs which is uncertain at this point in time.
In the first half of FY 2018, the revenue increased by 2.5 percent as compared to the corresponding previous year, due to the growth in housing and business lending combined with higher margins. The net interest margin increased by 5 basis points which reflects reprising and lower funding costs. The cash earnings of the company decreased by 16 percent to $2,759 million against the prior corresponding period. The diluted cash EPS of the company decreased by 17 percent to 98.8 cps.
In the past six months, the share price of the NAB decreased by 10.93 percent from $28.630 to $25.500 as on 15 October 2018 and traded at close to a PE level of 13.100x. NAB’s share traded at $25.550 with a market capitalization of circa $69.72 billion as on 16 October 2018 (AEST 2:28 PM).
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