John Stewart talks to Michael Pascoe

Michael Pascoe: Banking’s Holy Grail is cross-selling investment products to customers. Now John Stewart wants the mortgage brokers doing it as well.

John Stewart: Don’t think of mortgage brokers as a person. Think of a mortgage broker as a company, so this is a company with customers. Right now they provide a service that says, 'We broke across mortgage's. If they’d bring in properly qualified people they could say, ''¦ and we also have another service here which is financial planning' and actually this happened in the UK. There are a number of mortgage brokers who have their financial planners working within the company.

MP: Will those financial planners working for mortgage brokers '¦ will they be sales on commission to the NAB or will they be totally objective, totally untied financial planners?

JS: They will be totally objective, totally untied financial planners.

MP: So how would you get cross-sell?

JS: How will you get the cross-sell? No, the cross-sell is for the mortgage broker?

MP: How will those financial planners take a disproportionate amount of your product if your product isn’t the best?

JS: They will be using our platform, which is the manager of managers, because we aren’t the end fund manager. For example, our platform means that the investments go somewhere else. That’s the service we provide to them.

MP: Is it the cheapest, most cost-efficient platform?

JS: We think it’s the best. It’s not necessarily the cheapest, but we believe it’s the best and the client has a choice whether to take it or not.

MP: There’s no endangering the brand of the bank by ending up being with financial salesmen rather than financial planners?

JS: Absolutely not. We’ve been in this market for 20 years now and we know how to handle the market.

MP: It was separate until very recently.

JS: Yes, we’re comfortable. And things will only be done if they’re properly controlled.

MP: Some things are very hard to control, such as shrinking net interest margins. Australian banking margins compressed by 14 basis points, to 2.51%. New Zealand’s shrank 18 points to 2.43% and UK net margins dropped a hefty 24 points to 3.72%, with more to go.

JS: You’re asking what is the normal base for UK. It’s probably closer to about 3% because when you’re looking at the Australian banks, we’re closer to the small full-service bank. So that might be Barclays or whatever. A mortgage bank would be HBOS. [So in the UK] it’s probably closer to 300 basis points so that margin fraction will continue for a bit yet.

MP: Do you expect that margins in Australia will shrink in 2006 and if you do think so, what do you think will drive that?

JS: Competition. I’ve been in this business for 25 years '” longer '” and every year margins go down because it’s ripe for competition. Anyone who [plans] on margins staying exactly the same would be an optimist.

MP: Combine that with John Stewart’s cautious economic outlook..

JS: The Australian economy is slowing. You’ve got higher oil prices coming in; that’s going to be the biggest effect. And what the central bank’s going to have to do is find the balance. I think we’ll play a waiting game. Find the balance between those higher prices and the effect it has on the domestic economy, so our prediction is that whatever the numbers were for system last year you can knock about 2 points off them. So if you’re talking about housing growth it’s [now 13], it’s going to be about 10-ish. That’s how we see it going forward. Then New Zealand, on the other hand: the economy’s overheating a bit more; interest rates are higher. I think interest rates will increase even more against those tight settings so I would see the economy softening in New Zealand and we’ll see business credit growth slowing there.

MP: And NAB dividends aren’t jumping anytime soon?

JS: We’re not giving any guidance. I think you can take from me that it’s not likely to go down.