As pressure mounts on NAB to improve its return on equity and shareholder returns after more than a decade of underperformance, bank chief Cameron Clyne is believed to be pulling together a taskforce to identify some "bold" cost-cutting initiatives.
The taskforce of yet-to-be-hand-picked senior executives will have until the end of January to come up with a game plan, which will then be unveiled to the market in March.
The bank is looking to identify costs and efficiencies, with one source suggesting it could be up to $1 billion, which represents more than 10 per cent of total costs, excluding wealth management.
"We need to be bold and we need to identify a number of key changes that we can announce to the market in March," Clyne is believed to have told his senior executives.
Clyne, who has been in the top job for almost four years, flagged the Win Today, Win Tomorrow strategy to 200 executives at an enterprise leadership meeting last Thursday.
He is believed to have told them he wants NAB to get back to the number one position in the market. Those executives then briefed their senior executives in a series of teleconferences on Wednesday.
The Win Today, Win Tomorrow program comes a week after NAB released a set of disappointing results that attracted criticism from investors and analysts who have grown weary of NAB's performance.
UBS banking analyst Jonathan Mott wrote in a report titled FY12 Result: A Halloween Special: "Unfortunately NAB's trend of negative surprises, which has plagued the bank for more than a decade, continues."
To put it into perspective, a decade ago NAB was trading at $31.75 a share compared with $24.99 yesterday. In sharp contrast, ANZ was trading at $16.67 at the end of 2002 compared with $25.51 at the close of trade on Wednesday, Commonwealth Bank was trading at $27 a share versus $57.80 at Wednesday's close and Westpac was trading at $13.75 compared with $25.86 on Wednesday.
While NAB's performance in the past four years has been better than the previous six years, it is still below that of ANZ, Westpac and CBA.
During his briefing to senior executives, Clyne is believed to have covered three broad areas of reform. The first involves pulling product development management into one area, encompassing bank products and wealth management products. The second relates to centralising operations and technology across the banks' business groups to have one back office and the third is to implement "operationalise to win tomorrow".
The latter is believed to involve targeting do-it-yourself banking with the aim of getting the bulk of consumers online, something that undoubtedly would reduce branch costs, introducing world-class customer relationship management and becoming the bank for superannuation and pensioners.
Collapsing the various back offices into a central system makes sense in terms of cost-saving and efficiencies, as does pulling together product development in banking and wealth management - as long as there are no major glitches.
As BBY analyst Brett Le Mesurier said: "Banks have confronted the problems of low credit growth by reducing head count and improving efficiencies, but to go too far can have catastrophic effects. If NAB is implementing a massive change program returns can be attractive but the risks can be overwhelming."
A former NAB chief executive, Frank Cicutto, tried to win back investors in 2002 with his Positioning for Growth program, which involved a massive restructure to improve efficiencies. It involved $400 million after tax in significant-items expense with the expectation of delivering $370 million a year in cost savings by 2004. The plan involved a massive redundancy program and back-office restructure that resulted in a focus on costs and searching for process efficiencies. Sadly, Cicutto never got to see the results.
Unfortunately, in the middle of it the bank became embroiled in a $360 million foreign exchange debacle, which resulted in a massive board overhaul and the departure of Cicutto in 2004.
When Clyne releases his Win Today, Win Tomorrow strategy it will undoubtedly attract much scrutiny, particularly given the taskforce has less than three months to come up with a silver bullet to restore NAB's credibility and put it on a track where it can return to the halcyon days of the early 1990s when it held the top position in banking.
Unfortunately that was 20 years ago and the bank has a long road to march to get back to number one. It also needs to restore credibility, which has been sorely damaged from years of over-promising and under-delivering.
When Clyne first took the job he signalled his "clear and unambiguous goal" was to give shareholders a good return. Unfortunately, he is yet to deliver.
His announcement to senior executives was light on detail and prompted one observer to describe the briefing as "Seinfeldian": an announcement about nothing.
"It really was a Seinfeld moment," he said.
Frequently Asked Questions about this Article…
What is NAB's 'Win Today, Win Tomorrow' strategy and why does it matter to investors?
The 'Win Today, Win Tomorrow' strategy is NAB chief Cameron Clyne's headline plan to lift the bank's performance and shareholder returns. According to the article, it focuses on cost savings, centralising operations and product development, and pushing more customers to online do-it-yourself banking. For everyday investors, it matters because the strategy aims to improve profitability and restore credibility after years of underperformance.
What timeline has NAB set for its taskforce to develop cost-cutting plans?
The article says a senior-executive taskforce will be assembled and given until the end of January to produce a game plan, with the initiatives due to be revealed to the market in March. Investors should watch those March announcements for concrete detail and potential impacts on earnings.
How much could NAB's proposed cost savings be, and how significant is that?
Sources in the article suggest NAB could target up to $1 billion in cost savings, which would be more than 10% of total costs (excluding wealth management). That level of savings would be material and could meaningfully affect profitability if achieved without major operational issues.
What are the three main reform areas NAB is reportedly considering?
Clyne reportedly briefed senior executives on three broad reforms: 1) combining product development for banking and wealth management into one area, 2) centralising operations and technology to create a single back office, and 3) 'operationalise to win tomorrow' — pushing customers online, cutting branch costs, improving customer-relationship management and targeting superannuation and pensioner customers.
What risks should investors consider about NAB's proposed restructure?
The article highlights that while collapsing back offices and consolidating product development makes sense for cost-efficiency, major change programs carry operational and execution risks. Analysts warn that cutting too far can have catastrophic effects, and the bank's past restructure under former CEO Frank Cicutto was followed by a costly foreign-exchange debacle. Investors should weigh potential upside in returns against implementation risk.
How has NAB's share price performance compared with other big Australian banks over the past decade?
According to the article's comparisons, NAB traded at $31.75 a share a decade ago versus $24.99 at the time of reporting. By contrast, ANZ, Commonwealth Bank and Westpac all showed stronger gains over the same period. The article notes NAB has improved in the past four years compared with the prior six, but still lags ANZ, Westpac and CBA overall.
What have analysts and insiders said about NAB's recent results and the need for change?
The article quotes UBS analyst Jonathan Mott saying NAB's trend of 'negative surprises' continues, reflecting investor frustration. BBY analyst Brett Le Mesurier warned cost cuts can improve returns but also bring overwhelming risks if taken too far. The overall tone is that investors and analysts expect credible, detailed action rather than high-level statements.
What should everyday investors watch for when NAB unveils its plan in March?
Investors should look for specific targets and timelines (including whether the $1 billion figure appears), details on how back-office centralisation and product consolidation will be executed, expected one-off costs versus ongoing savings, and management's risk controls. Clear, measurable milestones and credible implementation plans will be key signals that the strategy could improve shareholder returns.
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