Profit gain shows the real deal

By PAULA OLIVER and agency

Suitors chasing the National Bank have been shown the quality of what they are seeking.

The bank's latest disclosure statement reveals a soaring profit and significant improvement in several areas.

The National Bank posted a net profit of $308 million for the six months to June 30, up 23 per cent on the same period last year.

The profit came from increased revenue and static costs.

It was also helped by a buoyant home lending market that has underpinned other strong bank profit results.

Westpac, which issued its disclosure statement yesterday, made a profit of $322 million for the nine months to June 30.

The profit was dragged down by a decision to move a general provision for bad and doubtful debts of $177.6 million from an overseas balance sheet into the bank's New Zealand balance sheet.

Without this, the profit would have been nearer $500 million.

BNZ's profit figure for the equivalent nine months was $429 million.

Westpac and ANZ have applied to the Commerce Commission for clearance to buy the National Bank from its British parent, Lloyds TSB.

The sale process is reportedly on a timetable that requires final bids next month, but that will depend on how long the commission takes to make its decision.

Analysts have predicted the National Bank could fetch $6 billion to $7 billion, but after its latest result some believe that figure could go higher.

"Taken at face value, the strength of the NBNZ result might establish a more demanding acquisition price," Merrill Lynch said in a report.

But it added that intending buyers would be unlikely to view the first-half performance as sustainable.

Questions have been raised in banking circles about how much value a buyer will be able to extract from the National Bank because of its maturity and high price tag.

Some doubt that many improvements will be possible after a takeover.

The bank has cut a key measure of profitability - the cost-to-income ratio - to well below the most recent figures reported by its competitors.

The National Bank figure is 37.4 per cent, down from 42.7 per cent, leaving doubt over how much more the ratio can be improved.

Other major banks are in the early to mid-40s, and the ASB's figure is higher, at 47.9 per cent.

The National Bank has more than $40 billion in assets.

Westpac, its nearest rival, revealed yesterday that it had also topped $40 billion.

The National Bank's rural lending growth was strong - up $1 billion at $7.3 billion.

Household loans rose to $15.3 billion, and customer deposits of $21.8 billion, were up 14.4 per cent on the same period last year.

The strong figures could give some spark to a sales process that Australian reports hint has been slowing.

They suggest that the National Australia Bank, which last month made a lightning raid on AMP's share register, has been given extra time to enter the next stage of the process.

NAB, which has yet to declare its hand, could be crucial to Lloyds TSB gaining the price competitiveness it wants.

A theory gathering momentum among industry commentators is that potential Australian buyers may come to view the purchase as being too complicated.

Any buyer would have to satisfy stringent new Reserve Bank requirements, pay a lot for the National Bank's brand and goodwill, and get past the Commerce Commission.

A local group, Black Horse Holdings Consortium, has said it has finance from a European institution to make a bid.

The Commerce Commission is to rule on the clearance applications by ANZ and Westpac on September 25.