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· Posted on
May 6, 2024

NAB plans to buy back billions of shares despite a profit drop because NAB is in it's positivity era

Despite this profit drop, NAB has announced a share buyback of $1.5 billion to steady the banking-ship.

What's the key learning?

  • NAB doesn’t want shareholders running for the wind after seeing a profit drop.
  • NAB’s largely attributed this drop to the slowing economy and the higher cost of living.
  • One of the reasons why companies buy back shares from shareholders is to put surplus cash to good use.

👉 Background: NAB is one of the big four banks in Australia, with over 9 million customers in Australia and overseas.

👉 What happened: NAB has announced a drop of nearly 13% in its cash profit for the six months to March -  largely attributed to the slowing economy. While NAB saw its lending book grow 9%, its late payments rose over 1% - which shows some stressed borrowers.

👉 What else: Despite this profit drop, NAB has announced a share buyback of $1.5 billion to steady the banking-ship.

What's the key learning?

💡A share buyback is when a company re-purchases some of its shares from existing shareholders. Companies can choose to do buybacks for a number of reasons.

💡Buybacks can be used to get rid of excess cash if the company isn’t planning to use the cash for expansion.

💡A share buyback can also be used to signal that the company believes its stock is undervalued. After a profit drop, NAB wants to signal to investors that its earnings are circumstantial, and not part of an ongoing downturn.

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