Investors await assurance Clyne on right path at NAB

Cameron Clyne, catapulted to the helm of National Australia Bank in the depths of the global financial crisis, saw only one way out.

Cameron Clyne, catapulted to the helm of National Australia Bank in the depths of the global financial crisis, saw only one way out.

Throwing away the playbook he had used as a management consultant advising banks to embrace risk, Clyne adopted a more conservative approach for Australia's largest lender by assets. He closed an investment-banking unit, shrank the ailing British property portfolio and broke away from his biggest competitors by luring borrowers with lower mortgage rates, he said in an interview last month.

He also gave up a 35th-floor office for a desk among his staff at the Melbourne headquarters and reached out to irate customers through radio shows.

"We are at our best when we are boring," said Clyne, who took over as CEO in January 2009. "We are not going to do anything spectacular. We are going to deliver what we say to our customers."

Under his stewardship, NAB shares have climbed 62 per cent.

Still, it is the worst performer since the end of 2008 among Australia's four biggest banks.

Shares have been weighed down by the British operations, where mounting bad debts last year triggered the first drop in profit since 2009. Britain's foundering economy torpedoed Clyne's plans to sell or expand the business, leading him to shrink the unit by cutting more than 1400 jobs starting last year.

NAB, Australia's most valuable bank a decade ago, is now ranked fourth. Its return on equity, a measure of how well it reinvests earnings, was 14.2 per cent at the end of September, lower than its competitors, and its net interest margin, or the profitability of its lending operations, also lagged behind at 2.11 per cent. Earnings from its biggest unit, lending to businesses, slid 1.5 per cent in the fiscal year, adding to investors' concerns.

"In the last few years, they have materially underperformed their peers," said Simon Burge, chief investment officer at Sydney-based Above the Index Asset Management, which owns NAB shares. The British unit in particular "has just been a noose around the bank's neck".

Clyne, who had been running NAB's New Zealand unit since 2007, was appointed to the top job on July 31, 2008, six days after news of investment losses triggered the biggest one-day drop in its shares in 21 years.

The former PricewaterhouseCoopers consultant faced the task of turning around a 150-year-old bank with about 40,000 employees. What followed was a "fairly tumultuous" time, he said, describing a five-month transition that ended when he took over from CEO John Stewart.

"At some point, I was wondering if I would make it to the first of January," Clyne said, recounting working for as many as 40 days at a stretch without a break.

"You just didn't know how the world was going to play out."

As CEO, Clyne immediately began paring risk. He cut expenses, divested assets and trimmed dividends for the fiscal year ended in September 2009 by 25 per cent. He has since increased the payout to shareholders.

He also shut the investment-banking unit, nabCapital, which had racked up losses during the global financial crisis. Clyne moved assets he wanted to exit - mainly British and US investments, including collateralised debt obligations, property and structured-asset-finance holdings - into a new unit with a portfolio valued at $26.5 billion at the end of March 2009.

The turnaround isn't complete. In March, the bank changed some senior managers and said it planned to cut costs by $800 million within five years. Clyne, who was awarded $8.8 million in total remuneration for the 12 months to September, vowed to simplify products,

reduce duplication and invest in new technology to reach the savings target.

First-half results, scheduled to be announced on Tuesday, might help allay investor doubts.

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