NAB flags strong revenue growth, supports Rudd's economic stimulas package to break the cycle

National Australia Bank's new CEO delivered his debut quarterly trading update for NAB, flagging strong revenue growth, broadening bad debt issues, increasing economic uncertainty and the clear and present danger that rising funding costs would prevent NAB from passing on the full amount of any future rate cuts.

The future is very uncertain and it is neither sensible nor realistic to
try to predict the future

The NAB boss's briefing was a sober bookend to a week that opened with the Commonwealth Bank's Ralph Norris confirming the CBA would deliver earnings stronger than market consensus, which was then punctuated by Suncorp's rush to recapitalise in the wake of a weakening earnings outlook.
But Clyne's commentary show it would be a mistake for anyone to imagine our banks will remain immune from the economic realities, either here or internationally.
There are tough and testing times ahead and the wave of bad debts that will inevitably be generated by our almost certain recession will hit bank profits and eat into their statutory capital.
As that happens, we can expect the banks to move with defensive vigour to protect their capital bases by trimming dividends and raising new capital, though either vanilla or hybrid equity.
Each of the banks, either formally or anecdotally, is reinforcing the same business themes.
Their revenues and pre-provision earnings have been buoyed by government underwriting and the rush to quality inspired by uncertainty and volatility. Bad debts are on the rise, however, and if unemployment reaches anything like the 7 per cent widely predicted by their own economists, the need for more severe collective provisioning will intensify. There is confidence that, even if unemployment hits about 7 per cent, the mortgage books will remain largely sound. There is a general expectation that, over the coming six months there will be a worrying and costly deterioration of the business lending books.
It is clear, for example, that having almost instantly squeezed the life out of the vulnerable at the top end of the corporate food chain, the global financial crisis is beginning to migrate to the small and medium business sector.
As Clyne said yesterday, the single names that forced NAB's $521 million worth of specific provisions over the December quarter have been well known for the best part of 12 months.
"But we are starting to see more general stress and deterioration in the SME book," he said.
Small and medium businesses are the core generator of entrepreneurial wealth and employment in Australia.
The real danger of a meaningful, extended recession in that sector is that it becomes almost self-perpetuating. A small business closes, causing unemployment, which in turn forces more businesses to shut their doors. And so on. That is why NAB's collective provision increased nearly 30 per cent to $303 million over its first quarter and that is why the Rudd Government has acted so quickly in deciding to spend $42 billion of our national surplus.
The aim is to provide a circuit breaker to prevent recession.