National Australia Bank will set aside an extra A$1.18bn ($792m) to compensate victims of dubious insurance and shoddy financial advice, in a blow to its bottom line that raises expectations of further dividend cuts or a capital raising.
The new costs, announced to the stock exchange, bring NAB's total provisions for remediation to more than A$2bn and raises the risk other banks' compensation bills may also blow out. NAB admitted that until all customer payments have been completed, the final cost of the remediation remains uncertain.
"We understand that shareholders will be rightly disappointed," acting CEO Philip Chronican said in a statement. "We also recognize the need to prioritize dealing with these past issues and fixing them for customers."
We understand that shareholders will be rightly disappointed"
Approximately 92% of the remediation charges are for wealth and insurance-related matters, with the remainder for banking-related matters.
NAB said a key driver for the compensation payments was ongoing adviser service fees charged by self-employed NAB advisers. The bank said it was making allowance for more than a third of the ongoing service fees its advisers charged between 2008 and 2018.
NAB said some of the compensation related to "non-compliant" financial advice, and refunds for clients of its salaried financial planners.
Chronican said the bank had committed to "significantly" improving its customer compensation practices, and it had paid $202 million, spread across 450,000 payments, between June last year and August this year.
The country's fourth-biggest bank by assets forecast that the latest charges after tax will drag down cash earnings by A$1.12bn in the second half of 2019.
In combination with provisions raised in 2H18 and 1H19, NAB said this brings total provisions for customer-related remediation at 30 September 2019 to A$2.09bn.
The increased charge follows a government-mandated inquiry which found misconduct at major Australian financial institutions, with NAB singled out over accusations that management had failed to accept responsibility for wrongdoing at the bank.
The bank's chief executive, Andrew Thorburn, and it chairman, former Treasury secretary Ken Henry, both resigned after they were criticised by commissioner Kenneth Hayne in his final report in February.