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Global operating conditions remain difficult, NAB says. Photo: Greg McKenzie

National Australia Bank chairman Michael Chaney has acknowledged the bank’s earnings drop this year was ‘‘below budget’’ and hurt by the bank’s troubled UK business.

Speaking at the bank’s annual meeting in Perth, Mr Chaney issued a cautious outlook for the banking environment and said it would take another year to finalise the restructuring of the UK business.

Although at the end of the overhaul the business will emerge as ‘‘largely self-funded and profitable’’.

Last month NAB posted a 22 per cent drop in full-year net profit to $4.08 billion, with the bank weighed by problems in the UK.

NAB escapes first strike over pay

The bank appears to have escaped a first strike over its executive pay report, while finance director Mark Joiner survived a protest vote against his board re-election.

Proxy figures just revealed by the bank at its annual meeting in Perth have a hefty 21 per cent vote against the bank's remuneration report, falling short of the 25 per cent vote needed for a first strike.

This figure is not final as it doesn not take into account figures of shareholders voting at the annual meeting.

Still, the large "no" vote on the bank's remuneration report comes after NAB posted a 22 per cent drop in full-year net profit to $4.08 billion, with the bank weighed by problems in the UK. The bank’s financial woes were largely caused by losses from NAB’s troubled UK banking businesses.

NAB chief executive Cameron Clyne’s pay rose to $8.8 million last financial year and included almost $4 million worth of bonuses.

Mr Chaney, who was overwhelmingly re-elected as NAB chairman, tried to reassure shareholders about the bank’s executive pay, saying short-term bonuses had been lowered on account of the bank’s recent performance.

‘‘We adjusted the formula for short-term incentives downwards this year because we thought the result was disappointing,’’ he said.

Shareholders also approved the re-election of finance director Mark Joiner to the board, with 855 million proxy votes in favour and 194 million against.

Restructuring the UK business

Earlier this year, NAB sought to limit further shareholder losses in Britain by cutting 1400 jobs, closing dozens of branches and exiting commercial property loans, in response to an economy sinking deeper into recession.

‘‘These results were below the budget we set last year, principally as a result of a deterioration in the UK economy which had a significant impact on the bank’s performance in that region,’’ Mr Chaney told the shareholder meeting in Perth.

‘‘Following declines in commercial real estate values and the economy late last year, we decided that the only sensible course was a radical restructuring of our UK banks,’’ Mr Chaney said.

While NAB explored a sale of the business until late 2011, Mr Chaney said a ‘‘disposal ultimately proved not to be possible’’. The bank has since repeatedly ruled out a fire sale of the bank's UK business - centered on the Glasgow-based Clydesdale Bank, saying such a move would trigger deep shareholder losses.

Mr Chaney said the bank’s operations outside the UK have performed well with the strategies put in place over the past three years starting to bear fruit. This includes a rebound in performance in NAB’s once problematic Australian retail banking business, which has since topped ratings in terms of customer satisfaction and posted an earnings boost.

Global conditions difficult

Meanwhile Mr Chaney  said the global operating conditions remain difficult.

‘‘The heightened uncertainty, volatility and stress evident in global markets late last year have weakened business confidence,’’ he said.

The annualised pace of growth in the seven biggest advanced economies slowed, with much of Western Europe and Japan falling back into recession, he said.

Mr Chaney said it was clear that Australia was going to need increases in productivity to achieve acceptable levels of economic growth given the looming drop off in the resources investment boom.

Mr Clyne meanwhile told the meeting that 2013 will be a ‘‘challenge’’.

Even so, he said NAB has ‘‘good momentum in its core Australian and New Zealand businesses and the right cost disciplines for these more difficult times’’.

In early afternoon trade, shares in NAB were down 1 cent at $24.65.