NAB share price: what 3 top brokers think after $1B cost blowout

A number of Australia’s top brokers today revealed their current thoughts on NAB’s prospects after the bank reported a sizable set of customer remediation and software capitalisation costs.

With the National Australia Bank (ASX: NAB) yesterday revealing post-tax costs of A$1.2 billion related to customer remediation (A$832 million) and software capitalisation changes (A$348 million), some of Australia’s top brokers have today weighed in on how such costs may impact the outlook for the bank.

Commenting on these costs, NAB's current CEO, Philip Chronican, noted that the bank:

'Is moving forward with rigour and discipline to make things right for customers,' with Mr Chronican continuing that 'we understand that shareholders will be rightly disappointed. However, we also recognise the need to prioritise dealing with these past issues and fixing them for customers.'

Mind you, even though some brokers retained a positive outlook following this news, the NAB share price still fell around 3.20% today – as the market digested unrelated concerns about a potential recession.

The RBA’s decision to cut interest rates to a record low of 0.75% also may have contributed to concerns over bank profitability in general, with the ANZ share price and the CBA share price also falling during today's session.

NAB share price: Citibank retains a buy rating

Though Citibank analysts noted that they were disappointed by yesterday’s announcement, they pointed out that these costs will ultimately not have an impact on NAB’s primary business operations.

Positively at least, the bank itself reported that it:

'Has in place provisions for the estimated costs and customer payments relating to all known material customer-related remediation matters based on information available.'

In saying this, NAB additionally pointed out that, 'until all customer payments have been completed, the final cost of such remediation matters remains uncertain.'

Ultimately, in response to these new charges, Citi revised NAB's FY19 EPS down by 13.3%, maintained their ‘buy' recommendation and noted a price target of A$30.50 per share on the bank.

JP Morgan also remains positive

Like Citibank, JP Morgan has remained optimistic over NAB’s prospects, revising their price target slightly down to A$29.50 from A$29.60 and reiterating their ‘overweight’ rating on the bank.

Even still, the investment bank noted that customer remediation costs of A$832 million came well ahead of their own estimates, which previously pegged such costs at A$350 million.

Ultimately, both JP Morgan and Citibank believe NAB’s commercially-focused banking operations rank as a key positive. This is in contrast to the likes of CBA, which place a heavy emphasis on retail banking.

Morgan Stanley rates NAB ‘underweight’

Though the investment banks discussed above have remained relatively positive on the National Australia Bank (ASX: NAB), Morgan Stanley appears decisively less son.

In the wake of this news, Morgan Stanley revised down NAB’s second-half 2019e cash profits by 24%, flagged the bank’s tight capital position, and reported a price target of A$26.00 per share and an ‘underweight’ rating.

Broker sentiment aside, year-to-date the NAB share price has been a solid performer, rising 18.7%, even when you factor in the last two days of losses.


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