Green fields for NAB

Background, by Eureka Report editor James Kirby: John Stewart, chief executive of National Australia Bank, has been in the hot seat at the top of Australia’s only international retail bank for three years. After making some progress in rationalising the wider activities of the bank, he’s now planning the first phase of post-recovery growth.

Stewart says NAB is ready to aggressively develop its leadership in agribusiness. Already the largest Australian bank in the farming sector, he indicates the bank is ready to expand its agribanking services overseas.

In today’s video interview, he tells Robert Gottliebsen* that NAB’s Australian agribusiness expertise is invaluable in overseas markets because Australia is one of the few markets in the Western world where agribusiness operates as a free market rather than a heavily subsidised system, such as the EU. If Stewart aims to develop a global reach for NAB’s farm lending, he’ll have to take on Dutch-owned Rabobank, which launched a similar strategy more than a decade ago with great success.

Stewart also believes the success of NAB’s financial solutions business '” a mid-market business lending service '” throughout the UK is “exportable”.

Today’s video interview with the British born NAB chief is a “slow-burner”. Stewart first details his ongoing attempts to rationalise the bank’s structural failings, but his wider ambitions for the bank detailed later in the interview will be welcome news to investors jaded with a three-year old 'turnaround’ story.

The interview

Robert Gottliebsen: The UK bank has been your biggest problem. Is the solution working?

John Stewart: I’m pleased to say it is. I just say, I’ve had some sleepless nights over that over the last three years. Let me just remind you of the problem, actually in Ireland and the UK we had four banks and they used to do things in four different ways: four different boards, four different product sets '” it was a nightmare and we hadn’t invested in them as well.

Now we’ve sold the two Irish banks. We’ve made the two UK banks now into one efficient bank '¦ almost finished. It’s really starting to get there. It’s called Clydesdale. Still has the trading name Yorkshire Bank; has one board; has one chief executive. Slowly, we’ll have one set of systems and one set of products over the next year. So that is terrific. We realise though in doing that, that maybe wouldn’t be enough because that gives us an efficient bank in the UK where it’s just a 'me too’ to see off its competitors. So what we had to do, we also had to differentiate it.

How did you do that?

We focused on the south of England where we didn’t have a presence. Our banks were in the north of England and Scotland. Now that’s the most profitable part of the UK so what could we do there that would be different and we targeted certain issues: the SME [small and medium enterprise] market, where we were very good and the mass affluent market as opposed to top of high net worth.

We created an offering for those people that would be very attractive. Now we started off as a greenfields site and we had about two offices there. Nothing much. So we’ve now got 36. They are growing hugely. They’re very successful and they’re operated on a completely different business model from anything else in NAB.

The managers get a share of the profits?

Yes they do and they’re not actually called managers. They’re called managing partners and they recruit other partners and we pay them on a basis that if things go wrong at that branch they would carry the can. If things go well, of course, they get a proportion of the book value as well as just their sales value.

John the NAB’s UK bank earns about half a billion dollars. Could it double over time?

The growth that we’ve been seeing recently '” for the past six or 12 months '” has been phenomenal. Not only in the south of England, where you would expect it '¦ You’d expect to grow from nothing and we’re getting fabulous expansion figures there. But what’s interesting is that we’ve retrofitted that model you spoke about into the north of England and Scotland and it’s giving extraordinary growth figures there as well.

Could you take those financial solution centres back to Australia?

If you’d asked me that question 12 months ago I’d have said no because it’s an attacker strategy for the south of England but I didn’t expect the success in the north of England and Scotland to be what it is, so we are giving that a lot of thought just now. We’re looking and saying, 'What are the features that are making it so successful in the north of England and Scotland and are there any of those features that we could transport to more mature markets like Australia and New Zealand?’

And what about other parts of the world?

Well the attacker strategy, so that’s the one in the south of England, that’s really attacking a very mature, very competitive market. You don’t expect to be able to go into that market and be successful but we are, because we’re doing it a different way. So we’re giving some thought just now to other markets that look the same way '” they’re mature, they have a number of big players and that we could offer the same business model and the same customer service offering too. We’re doing some research on that just now.

In Australia, wealth management companies are under increasing pressure to change their fee structure. How is this affecting you?

I would go as far as to say we’re leading the way. We have gone on record over the past 12 months, especially Steve Tucker who is the chief executive of our MLC company here in Australia, of saying that the industry really should sort itself out and change to fee-based remuneration as opposed to a commission-based remuneration. We think it’s only a question of time and we would applaud and work with any intermediaries to try and help them do that.

That would hit conventional life offices very hard.

It shouldn’t. It’s only a different way of remunerating your introducer or your sales person. We’re not suggesting you do it overnight. What we’re suggesting is that it’s phased in, but let’s get on with it because it’s inevitable.

John if you look forward to 2010, what else could you do with the wealth management business?

My view '¦ and this was a view I had when I was in the UK many years ago and didn’t dream that I’d be working in Australia. I used to look at Australia as leading the world in terms of wealth management, as a result of the compulsory super that came in about 15 years ago, and essentially the way the industry’s organised itself is you have distribution '” various forms. You then have platforms that Australia leads the way in and then you have fund managers. And the fund managers are international of course.

That model will be, I believe, exported across the world. Not only that, I think a lot of things that have happened in Australia in terms of reform, in terms of pensions, will happen in other countries. So there will be a much bigger superannuation market globally and a lot of the skills that are available in Australia in wealth management could be easily transportable.

Where might you take MLC around the world?

We haven’t done a lot of research into that just now but we believe that our expertise is in the platforms of those three areas that we spoke about, is in the platforms and we would have to identify the markets that were maturing so that those platforms were coming in at the right time. The UK, funnily enough, is one of them.

NAB is very big in rural lending in Australia. Do you plan to go deeper in that area?

Yes. We’re the number one agribank in Australia. We’re big in New Zealand and we’re growing fast in the UK. It’s a business that we’re very good at because we have teams that specialise in it so they spend all of the time thinking about the problems of farmers and wine growers and so on. Now what’s '¦ it’s an area where we have particular expertise that we think, yes, could be exportable to other markets and could be further developed here in Australia.

The AWB planned to challenge you in banking. Would you consider taking them over?

I think AWB have their own problems that would worry me. Would I be interested in their franchise in terms of banking and associated products? Yes I would.

So you’re looking to be much bigger in rural and taking it around the world?

That’s absolutely right. It’s a business we like. It’s a business we have expertise in. The Australian agricultural sector is particularly efficient. I should explain that. It’s not subsidised like the EU is or the United States are, so you have very efficient farmers and we work with them and therefore it makes us good at our game as well. If we can be number one, as we are with them, that’s a skill we could take elsewhere.

So if we look forward, NAB could take its wealth management, its rural and its financial solutions platforms into international markets?

We’ve done that a different way. We’ve actually said if we’re looking to expand anything we should expand something that we think we’re very good at and not something that we’re just in the pack with. Now what are we good at? We’re really good at relationship management all over the world and business banking and so on and at its best it’s probably the model that you and I spoke about in the UK.

We’re also very good at agribanking and that’s an area of interest to us. And we’re also very good at platforms and wealth management. Now if we give this more thought there may be a few other things that we’re particularly good at but those are the three things we’ve identified just now.

Thanks, John.

* Robert Gottliebsen is a national business commentator with The Australian.