Cameron Clyne is dragging NAB off the floor, but it is a long haul back to the halcyon days when the bank was on top, writes Clancy Yeates.
Unusually, long-suffering NAB shareholders have had something to cheer in the first few months of 2013. Shares in the bank, the perennial laggard of the big four, have surged more than 20 per cent so far this year, for once exceeding their rivals. It stands in stark contrast to NAB's record as the clear underperformer for the past decade.
From a longer-term perspective, however, investors in NAB still have plenty to grumble about. While Commonwealth Bank shares have been hitting record highs above $70 as the bank rivalled BHP as the biggest company on the market, NAB's glory days are a distant memory.
Its share price of just above $31 is still well below its record high of more than $44 in 2007.
Going further back, NAB was the largest of the big four by market capitalisation in the mid 1990s, but is now the smallest by some margin.
Four years into the job, chief executive Cameron Clyne this week sought to ditch the bank's tag as the underachiever, vowing to claw back costs by investing heavily in new technology. But the question remains: can NAB return to its former glory?
It seems hard to imagine now, but NAB was once the biggest bank by market value in the country. Indeed, in 1997 with Don Argus at the helm, NAB displaced mining giant BHP as the largest company in Australia.
The bank had avoided the worst of the fallout from the recession and was confidently taking on the world after a series of acquisitions in Britain and the US.
Fast-forward to today, however, and Clyne is still grappling with the legacy of overseas expansion into the recession-hit UK. Its British business is thought to hold about $4 billion in shareholder funds, but made a $231 million loss last year due to bad commercial property loans. The UK interests are a constant drag on the stock price and the number one gripe of many investors.
And it appears to have made a lasting impression on Clyne, who this week said the bank's woes overseas were one factor behind its relatively cautious approach to Asia. "If you take a realistic assessment, every Australian bank, to varying degrees, has mostly destroyed shareholder value by going overseas," he said.
NAB's weak performance is clear in its return on equity of 14.2 per cent last year, compared with CBA's sector-leading 18.7 per cent.
Despite carrying the wounds from its overseas forays, however, analysts stress that NAB's "core" Australian banking business remains highly profitable.
CLSA's veteran bank analyst Brian Johnson estimates that if one excludes both banks' wealth management arms, and NAB's business and its "specialist group" assets that have turned sour, NAB's return on equity rises to 20.8 per cent and CBA's to 20.2.
"Buried beneath poor strategic execution there still sits the best bank in Australia - that bank that Don Argus used to run," says Johnson, who has a positive recommendation on the stock.
The bank is the biggest lender to small and medium enterprises in the country - though this part of the market remains in a weak patch.
Reserve Bank figures show business credit is growing by a sluggish 2.8 per cent a year, and bankers say many trade-exposed businesses are still struggling.
As one analyst who did not want to be named puts it: "If you peel enough of the onion layers back there's actually a great business bank there. But business credit growth is going nowhere, so at the moment that isn't a very useful point of differentiation."
Like all the banks, NAB is also keen to exploit the wave of economic development sweeping through Asia.
Clyne this week stressed it had learnt from its history of troubled overseas acquisitions. He said this was one reason it would take the cautious approach of servicing business customers' expansion into Asia, rather than an on-the-ground presence.
But as Westpac boss Lindsay Maxsted commented on Thursday, the Australian bank with the correct Asia strategy will not be clear for perhaps another 10 years.
Another key thread of Clyne's plan is an overhaul of NAB's outdated technological systems. Clyne says this will promote more "self-service" by increasing its online-savvy customers, making the bank more productive.
Within five years, this IT program and a related move to shrink the size of its branches are expected to save $800 million a year.
But a crucial question for NAB is whether these savings can in fact be delivered. Given its troubled history, some in the market are sceptical.
Among some investors, the company is seen as "accident prone". Whether it's the string of bad acquisitions, a foreign exchange scandal in 2004, or the fact it was left holding toxic debt products when the global financial crisis hit, investors are wary of NAB unleashing nasty surprises.
Many of these dramas occurred before Clyne got the top job, but their legacy continues to stand in his way as he tries to turn around NAB's fortunes.