One of Australia’s big four banks is desperately playing catch up, as costly mistakes begin to blow out far beyond original estimates.
NAB has issued an update announcing it reveals profits are expected to take a $450 million hit.
Underpaid staff are one major factor, with the bank expecting it will now need to reimburse them $128 million.
When it uncovered the error back in December, the big bank thought $850,000 would be enough to cover the discrepancy.
NAB admitted is saying goodbye to $450 million in profit as it revises the impact of remediation programs and deserted property projects among others.
However, it is the underpayment of its staff that is proving to be its biggest headache.
NAB joined the never ending number of companies pinged for ‘wage theft’ and underpayment back in December. Back then it acknowledged that a payroll error had shortchanged 730 staff in the realm of $850,000.
The original calculation, however, has proven to be woefully inaccurate – or, at least, an exercise in wishful thinking – according to NAB’s update on Friday.
It now says that it owes $128 million before tax to an unspecified number of employees. In other words, the original figure has blown out by a factor of 150.
To put that in perspective, that’s an even bigger blowout than the construction costs of the Sydney Opera House, a hell of a benchmark to match.
As some jurisdictions attach prison sentences of up to 10 years for the most flagrant underpayment infringements, it’s also an issue Australia is treating with increasing seriousness.
It’s also not the only big bank to do it. Westpac and the Commonwealth Bank have both been done for it in the last 12 months as well.
NAB faces rising remediation costs
The underpayment scandal, however, while clearly wide-reaching within the organisation, is actually the smallest new charge facing shareholders.
NAB acknowledged a further $380 million addition before tax to its remediation program.
The new money is to remedy issues revolving around NAB’s wealth management business, MLC, which it, like others, divested from in the wake of the financial services royal commission.
Planners hired by NAB were found to have given customers bad, or non-compliant, financial advice. NAB has previously told the regulator ASIC it doesn’t expect to completely pay back customers what they’re owed until the end of 2022.
It leaves the door wide open for revised costs to continue rising over the next two years.
Beyond that, there’s a $134 before-tax rise in impairment costs, after the Melbourne-based bank scrapped plans for two new offices in the city’s Docklands area.
It caps off a rough week for the bank, which on Tuesday received a $15 million fine – not to mention a tongue lashing from a federal judge – for its ill-fated $24 billion referral program.
Then again, when it comes to Australian banks, it’s the cost of doing business.