NAB has to face a few bumpers

But as was the case for the English, yesterday was a new day for the National Australia Bank chief executive.

The market softened its view, marking the shares as much as 56c higher. They closed 17c up at $32.19.

Attesting to the view that Thursday's 5 per cent share price fall was an overreaction, among the top 20 stocks only NAB and WMC rose yesterday.

NAB's profits represented a 4.9 per cent increase in cash earnings per share, with falling profits in the wealth management division the main culprit pegging back weaker-than-usual growth.

But the profit numbers provided another confirmation of what bank investors have been fearing for some time. Tougher conditions for the seemingly unstoppable banking sector are afoot and profit momentum is winding down.

In the now-complete big bank reporting season, the five major banks still delivered combined annual profits of almost $11 billion, up 5.6 per cent. Consumer lending increased by 13.6 per cent on average, according to KPMG.

Banks still reduced costs but found the going harder, dipping the cost-to-income ratio from 52.3 per cent to 51.2 per cent on average. Margin pressure, always a feature of the results, eased, falling slightly from 2.83 per cent to 2.76 per cent.

Salomon Smith Barney said ``NAB's ongoing business lost steam in the second half", with ``ongoing underlying profit" (there seemed to be a thousand ways of cutting the complexly presented profit) falling 1 per cent in the second half.

Much of the dismay was directed towards the ``messiness" of the result (particularly related to MLC), due to more changes in NAB's reporting format and quality concerns such as a reliance on a much lower tax rate and lower bad debt expense in the second half.

But Morgan Stanley said there was actually little risk to the 2003 forecasts of 8 to 11 per cent earnings-per-share growth, given the ongoing share buyback (it resumes next week with more than $1 billion to go), and the absence of the MLC penalty payments to investors ($45 million after tax).

``It is now difficult to argue that NAB is expensive on a sum-of-the-parts basis, unless one wants to argue that the component parts of the group are lower quality than the average operations of their genre," Morgan Stanley said.

``Whilst this argument could easily be put for the UK businesses, it is a far harder one to credibly argue for the Australian franchise and MLC."

A key issue confronting NAB is that investors could discount the shares relative to those of other banks because the growth prospects in the northern hemisphere are not as good as they are locally.