When National Australia Bank (NAB) unveiled a Band-Aid solution to its UK banking problem a year ago, the powers at the bank hoped it would boost investor confidence and lead to a re-rating of the stock.
The soft option to transfer the bad assets into another part of the group rather than sell or close the business might have lifted the share price but it didn't help chief executive Cameron Clyne's investor confidence rating.
The latest highly influential and confidential Corporate Confidence Index, which benchmarks the perceptions of top analysts and fund managers against a list of major companies, does not disclose Clyne's ranking, which means he was ranked in the bottom quartile. He had a similar ranking in the previous survey.
The findings of the latest CCI, which has been tracking investor perceptions for more than two decades, is tightly circulated at board levels, cannot be copied and participants are subject to a confidentiality agreement.
The key management categories tracked by the survey include CEO effectiveness and whether there is a "strong focus" on enhancing shareholder wealth.
In NAB's case the ranking for an effective board was also not disclosed, and its ranking for management projections not coming to fruition was not disclosed, but it rated high on potential to be taken over.
These poor rankings boil down to NAB's problematic UK bank. The business has sucked up capital and triggered hundreds of millions in lending losses as it battles a troubled economy.
The feeling is that Clyne - and the board - should have sold out of the UK when he came to power in 2009. Good management is all about making the right decision quickly. Poor management is about waiting for the bleeding obvious to occur and then watching its opportunity pass.
The brutal reality is that Clyne should have realised the only problem he faced was the UK. The Australian franchise wasn't that bad. Indeed, NAB's return on equity in the March half was just under 15 per cent. If Britain is stripped out, its return on equity would have been a whopping 17.7 per cent.
Instead, he chose to keep the UK and since then the problems associated with commercial real estate there have grown and the flaws in its growth strategy in Britain became the major issue facing the bank. NAB releases its quarterly update on August 20 and, like every other announcement, a key focus will be on Britain.
While the really bad part of the UK business, its commercial real estate portfolio, has been transferred from the Clydesdale Bank and placed into NAB's "specialised group assets" (which is code for the toxic rubbish it has collected over the years), it will struggle to make a profit if this is included in the calculations.
While the latest survey was before NAB's half-year results, which were generally well received, the feeling from an investor confidence perspective is that stuffing the troubled British assets into another part of the NAB empire doesn't solve the problem, it merely transfers it from one pocket to another. That's no solution.
NAB might beg to differ. A spokesman for the bank said: "As we announced at the half-year results in May, the UK strategic restructure is proceeding ahead of plan. The transferred CRE [commercial real estate] portfolio has contracted from £6.2 billion in April 2012 to £5 billion at March 2013 and UK banking cash earnings were £41 million compared to a loss of £25 million at March, 2012."
It could be argued that the UK business has been a big drag not just on group earnings but also the share price. Over a 10-year period, NAB has dramatically underperformed its peers and the overall market. For instance, a decade ago, CBA was trading at $28, compared with a current $72.39, ANZ was trading at $17, ($28.92 on Tuesday), Westpac was trading at $16.50 (now $29.49) and NAB went backwards, trading at $31 in July 2003 (now $30.49).
While the bank's performance has improved since Clyne took the role as chief executive in January 2009, it is still lagging the rest of the big four banks. During his reign, CBA's shares have risen 150 per cent, ANZ's rose 100 per cent, Westpac's 76 per cent and NAB's 50 per cent, which is ahead of the 35 per cent rise in the S&P/ASX 200 Index.
In a report released on Monday, BBY analyst Brett Le Mesurier says the share price of NAB incorporates little prospect of an acceptable return from its UK business, for a long while. He says NAB's return on risk-weighted assets in its UK business has "consistently been less than 0.5 per cent per annum, which translates into a return on equity of less than 6 per cent on the basis of current capital levels". If its commercial real estate is included in the calculations, he warns that the return would be negative.
As usual, investors are happy with its Australian franchise but they lack confidence in management - and the board's - ability to execute an acceptable solution for the UK.