Can Don Argus help solve NAB’s biggest problem?

Much attention has focused on NAB's troubling UK exposures, but the bank faces a larger obstacle closer to home.

In the next few weeks, the new chief executive of the National Australia Bank will share a meal with Don Argus. It was Don Argus who, in his term as chief executive between 1990 and 1999, made NAB preeminent in business financing in Australia.

In Australian corporations, such meetings between a new chief executive and the person who ran the bank some two decades ago are rare. Most Australian chief executives don't delve too far into the past.

But when Andrew Thorburn took on the top job at the NAB last month, it did not take him long to work out that while all the publicity has been concentrated on the UK, his biggest Australian problem was business banking.

NAB is still the biggest business lending bank in the land, but in the last 12 months Mike Smith and Phil Chronican at ANZ have been targeting NAB by being more aggressive in their willingness to lend to medium-sized business. Smith and Chronican have taken 0.5 per cent from NAB's market share and, if that continues, NAB will lose its top spot. The official reaction at NAB has been that ANZ is taking risks that are too big. 

But Thorburn must know that there are deeper problems in the NAB's business lending operations, which need addressing as a matter of urgency. The good news for NAB is that, despite the market share loss, NAB is still the largest business lender. Thorburn makes no secret of the fact that retaining the number one position in business banking is one of his major Australian priorities. When they meet, Argus will no doubt explain to Thorburn how NAB replaced ANZ and Westpac as Australia's biggest business bank.

During the 1980s, Nobby Clark was NAB’s chief executive and Argus was in charge of the banking business. Clark and Argus made sure the National Australia Bank's lending book was in fine shape at a time when ANZ and Westpac made a volley of bad lending decisions. Then in 1990, Argus became chief executive of NAB. Markets were reeling in the wake of a major crash in the property market, which had followed the 1987 sharemarket crash. Both Westpac and ANZ were on their knees (Kerry Packer almost took control of Westpac around 1992-93). Don Argus saw the chance and aggressively began targeting ANZ and Westpac business customers.

By the mid 1990s, NAB was Australia's leading business bank. Argus made sure he had people who were good at assessing business risks around him. In the decades that have followed much of the DNA Argus implanted in the NAB has been lost and the problems of the UK really distracted Thorburn's predecessor Cameron Clyne.

 I dont know what sort of advice Argus will give Thorburn, but my guess is he will emphasise the need for the very best talent. Thorburn faces problems that Argus did not encounter. For example in the 1990s, Commonwealth Bank was moving out of government ownership and was not a big business lender relative to its size. These days CBA is looking to increase its business market share by mobilising its unique credit card based knowledge of where customers spend to assist its customers. And of course, these days ANZ and Westpac have strong balance sheets.

A great many medium-sized enterprises are wary of too much bank borrowing, which limits growth in the market.