How Clyne cleared the hurdles in NAB's path

When a chief executive as young as Cameron Clyne retires, it’s normal to suspect that it is an involuntary departure. In Clyne’s case, however, there is no reason to believe anything other than his own explanation -- that he’s had enough of executive life.

The reality, as Clyne said today, is that “these jobs are difficult”. Once the NAB chief executive, 46, decided that he wasn’t able to give 100 per cent of himself to it and wanted to “spend some much-needed time with my young family”, he also decided that it was time to hand it over to someone who could. That someone turned out to be Andrew Thorburn, Clyne’s successor as CEO of NAB’s Bank of New Zealand.

NAB chairman Michael Chaney, who will retire towards the end of next year, said Clyne had first canvassed retirement with him last year. He also said that NAB had looked at external as well as internal candidates (using the global search for a new chief financial officer last year as its guide to external candidates) before plumping for Thorburn, a career banker who is regarded as having done an excellent job in New Zealand.

If the role of a major bank CEO is difficult, Clyne’s five-year term as CEO was particularly difficult.

He became CEO of NAB in 2009, inheriting a big and with hindsight, deeply flawed exposure to the UK economy through the group’s British banks and a $1.2 billion portfolio of collateralised debt obligations that blew up as the financial crisis enveloped the group.

He also inherited a retail bank that was underweight relative to NAB’s peers. The bank became almost irrelevant in competitive terms as Westpac, with its St George acquisition, and Commonwealth, with BankWest, bulked up their retail banking presences and then bulked up further with splurges of mortgage lending.

It’s the UK exposures that have weighed on NAB and its performance since the crisis.

With no realistic option of exiting that market during the early years of the crisis and only fire sale terms (at best) available subsequently, Clyne had no choice but to batten down the hatches, recapitalise the UK business, place the UK group’s commercial property loan portfolio into run-off and wait for more appealing options to open up.

With the UK economy improving, the residual $6.8 billion portfolio has been running off ahead of expectations. Thorburn will inherit an improving position and greater flexibility to deal with the long-standing UK conundrum of whether to go or stay.

Clyne has had more obvious success with the retail bank. While it is easy to focus on the success of the provocative “Breaking Up’’ campaign, that success was built on Clyne’s prescient decision to abolish the fees that customers hated most, the promise to offer the lowest home loan rate and a major effort to improve NAB’s customer service. It turned around NAB’s retail market shares.

If the impact of the UK legacy could somehow be ignored, Clyne’s tenure would be regarded as an outstanding success.

Even with that baggage, he was able to claim today that NAB has generated the best one-year and four-year total shareholder returns of the major banks and its customer satisfaction rating has risen from fourth to second among its peers. He said he was very confident that NAB is a stronger bank today than when he started as CEO.

Within the bank he has transformed its technology platforms (albeit that remains something of a work in progress) and its management structure.

Thorburn comes to the position -- or at least will come to it in August when Clyne formally departs -- having increased Bank of New Zealand’s cash earnings by 40 per cent since 2008. While there are mixed opinions about the performance of BNZ during his tenure, the NZ economy has experienced considerable volatility over the past five years.

He has a 27-year history in the banking sector, with roles at Commonwealth and St George before joining NAB in 2005. He is regarded as an energetic executive, with more of an extrovert’s personality than the very measured and somewhat reserved Clyne.

Thorburn’s senior team will have a quite fresh look about it. It will have a new chief financial officer (former Merrill Lynch Bank of America CEO in Australia, Craig Drummond, appointed late last year; the retirement of veteran wholesale banker Rick Sawers later this year; and Andrew Hagger only a year into his task of trying to improve the performance of NAB’s under-performing wealth management businesses,

That is probably a positive. As Clyne said, while he will leave with unfinished business, the job of leading a bank is never complete.

The big challenges facing Thorburn when he takes up the role will be to finally resolve the fate of the UK bank; to maintain the momentum in retail; to protect NAB’s leading business banking position; to get improved performance from the wealth management business; and, particularly if NAB does exit the UK, to develop a differentiating group strategy.

Clyne had no choice but to be introspective and deal with the legacy issues exposed by the financial crisis. More of his tenure has been spent fixing things. Thorburn will take over a group with nothing like those kinds of structural challenges, which will create a challenge of its own.