NAB's Big Plan

National Australia Bank chief John Stewart wants to extend the bank's distribution channels by having mortgage brokers become financial planners. On video, he tells Michael Pascoe why wealth management figures largely in the bank's future.

By Michael Pascoe ·
11 Nov 2005

NAB is still working through deep problems - CEO John Stewart would not give earnings guidance at the results presentation, investors may see recovery in the short term share price at the bank but income hunters should not expect dividend growth anytime soon.

There was something for everyone in the National Australia Bank annual results on Wednesday: the critics and optimists, the fans and pessimists. The immediate bottom line for investors though was a softer share price as the reality check took hold.

CEO John Stewart’s big promise was that the NAB had bottomed in the March half-year and was on the way back up. His big threat was that the three-year recovery plan was only halfway through, with the overall banking environment deteriorating ahead.

There also was an admission that he expected to be around for several more annual results yet; this from the imported Scottish banker who originally said he was “here for the war, not the peace”.

Overall though, the figures and the story confirmed the outlook painted for Eureka Report three months ago by JP Morgan banking analyst Brian Johnson. You can check it here: http://www.eurekareport.com.au/iis/iis.nsf/pages/F0B19955C03417B3CA2570530007AC0F?OpenDocument

Basically, the long, golden summer of Australian banking is drawing to a close. It’s still good business, but from here on it certainly gets tougher. And in the NAB’s particular case, the stockmarket has already fully priced in a 100% recovery with no margin for error.

Nowhere is that better illustrated than in the outlook for the bank’s net interest margins, as you can see in the accompanying video.

Just fixing the under-investment by the two previous CEOs is still taking 80% of the $800 million John Stewart is investing in the bank this financial year. Only $160 million of that total is actually going on improving the offering to customers.

So while still playing catch-up on the bank’s structure and with shrinking margins, Stewart is looking for all the help he can get from the non-banking business: wealth management.

He told the analysts’ briefing that since merging the previously separate MLC structure into the bank, in-branch cross-selling of investment products had jumped 25%. And now Stewart has his sights set on opening up another channel for “financial planning” through mortgage brokers.

NAB shareholders will no doubt hope that is wildly successful. NAB customers though might want to question the whole process of being “sold” investment products by financial planners ' as Eureka Report subscribers know full well.

Check the video, which starts with part of my conversation with John Stewart after the media conference.