National Australia Bank has cancelled the share options awarded annually to staff at National Irish Bank and Northern Bank on foot of a poor trading performance.

This is the first time that staff have had to forfeit this aspect of their remuneration package. Staff were also told that bonuses will only be allocated on a case-by-case basis and will reflect regional performance.

NAB reported a 20 per cent fall in net profits to 3.2 billion Australian dollars (€1.87 billion) on Tuesday, and said earnings at its European operations had declined by 33 per cent.

The bank does not disclose the individual contributions of its four European banks - NIB, Northern Bank, and the Yorkshire and Clydesdale banks in the UK.

A number of factors were cited as having hit the European banks' profitability in 2004. These included €19.7 million of non-recurring costs in additional provisions for retiree medical expenses, costs associated with endowment mis-selling and regulatory costs related to the findings of the High Court inspectors in relation to NIB.

Further costs associated with the merger of the Yorkshire and Clydesdale banks were also incurred, according to the bank.

NAB chief executive, Mr John Stewart, told investors the bank was making progress on its decision whether to sell NIB and Northern Bank and expected the situation to be resolved within a couple of months.

The bank had expected three financial institutions, Halifax Bank of Scotland (HBOS), Rabobank and Lloyds TSB to make indicative bids to purchase the banks but none have made a formal bid .

Behind-the-scenes discussions are said to be continuing though, with HBOS still viewed as being likely to emerge as the owner of the two banks. The disposal of its two Irish banks and the merger of its two UK banks show that NAB plans to downscale its presence in Europe significantly.

Mr Stewart has already reshuffled his management team and a number of high profile executives have been recalled to Australia.