NAB banks on strong UK results but slashes jobs

CLYDESDALE Bank owner National Australia Bank today said its UK operations had performed strongly in the first half despite the charge for bad loans almost doubling.

NAB, which is led by Scots-born chief executive John Stewart, also warned it would cut up to 200 more jobs on top of an original target of 4660 - ten per cent of its total workforce in Australia, Britain and New Zealand.

The group, which also owns the Yorkshire Bank chain south of the Border, is some two years into a three-year restructuring plan designed to slash costs and red tape. To date, NAB has cut about 2300 jobs globally.

Last November, it announced it was closing 30 Clydesdale branches, including outlets at Morningside Road and Corstorphine as part of its cost-cutting drive.

Today's results revealed a nine per cent rise in group cash earnings per share (EPS), which exclude one-off items.

However, net profit in the six months to the end of March fell 27.7 per cent to A$1.99 billion (£830 million). Last year's first-half result was boosted by the sale of NAB's two Irish banks.

Mr Stewart said: "If you think the turnaround is finished, you're wrong. There is still quite a lot to do to improve these businesses.

"The good news, though, is there is a lot of shareholder value that will come out as we keep improving them."

NAB said its UK branch network witnessed good growth in deposits, sold more products and boosted mortgage sales. "This is a strong result for the United Kingdom businesses and demonstrates Clydesdale and Yorkshire banks are starting to deliver sustainable profit growth," Mr Stewart noted. UK pre-exceptional cash earnings were £108m, down two percent from a year ago but up 14 per cent from the previous six months.

However, the charge to provide for troubled loans in the UK leapt 85.7 per cent to £65m as the credit card and personal lending markets continued to deteriorate. In February, NAB admitted it had made a number of "classification errors" amounting to more than £4bn in its 2005 annual report.

But it added that the mistakes - described as "embarrassing" by analysts - did not change its earnings position for the period.

Banks in Australia are benefiting from more than 14 years of economic growth and low unemployment, fuelling demand for credit and keeping bad debts low. NAB's Australian operations contributed about 65 per cent of first-half earnings. The firm dominates the country's business lending market, with loans to one in four companies.

Chief financial officer Michael Ullmer said business confidence in Australia remained high, but business credit growth would slow to about ten per cent over the next year. Today's EPS figure was broadly in line with market forecasts.

Peter Vann, head of investment research at Constellation Capital Management, said: "It's good that they've contained their cost base and that is in line with what we had been expecting."

NAB did not provide any earnings outlook, but analysts forecast second-half cash EPS to rise 17.6 per cent.

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