THE DISTILLERY: NAB rebuke

There is no sense of surprise from the news National Australia Bank is scaling down its long-troubled UK operations. Does this mean that company boss Cameron Clyne has acted too late? We all saw it coming – so why didn't he do something earlier? This is the central to the discussion borne out in this morning's edition of The Distillery, as business commentators debate whether it was prudent or foolish for NAB to wait and see how the British economy played out.

The Australian's John Durie is the most combative this morning, arguing that Clyne should have tackled Clydesdale Bank and Yorkshire Bank head on from the very beginning. At least, that would have been the easy solution with the least downside.

"Lesson one at chief executive school is that when you take control of a company with troubled assets, you make a huge writedown. Lesson two is to use the low base as the starting point for your earnings hurdles, and that takes care of the rent for the next decade or so as the company magically passes the hurdles. NAB's Cameron Clyne decided against that approach and hoped to work through the issues in Britain. More to the point, back in 2008 even as the GFC hit, there was a genuine belief NAB could get bigger before it got out of Britain. Those plans are now out.”

The Age's Adele Ferguson says Clyne would at least be kicking himself that he didn't put the review on the UK business sooner, but adds the board must share some responsibility as well.

"NAB's UK business, excluding commercial real estate, was 8 per cent for the first half of 2012. For this reason the board needs to shoulder a good portion of the blame for the former chief executive John Stewart's December 2004 decision not to sell these banks. At that time Stewart sold NAB's two Irish banks for $2.5 billion but decided to keep Clydesdale Bank and Yorkshire Bank and tart them up with a $266 million restructuring exercise. In the British market, where critical mass is the ideal, NAB was stuck with two banks with less than 5 per cent of a market that has always been ferociously competitive, in a basket case of an economy that recently slumped back into recession. Similar questions need to be asked of Clyne's long-term commitment to the US. NAB bought the South Dakota-based Great Western Bancorporation in November 2007 – again under Stewart – at the top of the market for almost $900 million in cash – a price that was more than double the then trading multiples of US regional banks – and in a region the bank doesn't operate in. The acquisition was meant to be part of a bigger strategy, but it has turned into one of insignificance.”

While most commentators this morning at least acknowledge that it wasn't so easy to see how bad the UK operations were at the time Clyne took over, The Australian Financial Review's Andrew Cornell urges his readers to remember.

"There's no doubt investors would prefer National Australia Bank chief Cameron Clyne to be completely rid of Britain. But it could be worse – NAB could have still owned its Irish banks when the financial crisis hit and Ireland's economy imploded. Banking is about risk management and pricing risk, and when Clyne outlined his strategy in 2009, with the global financial system still febrile, people tend to forget he said his growth focus would be Australia and New Zealand but he wouldn't indulge in fire sales and clear the decks. When it looked like Britain might follow a more traditional recovery path, some started to think there was actually some upside in the remnants of the once ambitious NAB Europe strategy. Maybe even some acquisitions.”

Now that the review has taken place, Business Spectator's Stephen Bartholomeusz explains succinctly how it was Clyne's only option.

"While there were some in the market who still advocated an exit, selling at a time when there are few buyers of UK banking assets and those few are looking for absolute steals and vendor funding wasn't a palatable option, particularly when the pound is at decades-long lows against the Australian dollar. Given the deterioration in the already weak UK economy and the likelihood of minimal economic growth for some years, however, there wasn't a ‘'do nothing'' option either and, while Clyne has always kept open the possibility that NAB would use the distressed state of the UK banking market to expand by acquisition, doubling up in the UK in the current circumstances wasn't a realistic option and would, in any event, have triggered a shareholder revolt. So Clyne has played the only realistic card that he held.”

Let's just stick with NAB for a moment, because a lot of business writers have thrown their two cents in. The Age's banking writer, Eric Johnston, agrees with Bartholomeusz that Clyne is making the best of a bad situation. The Australian's Richard Gluyas says the market is sceptical about the provisions that NAB has left for its UK division, which could prove to be an issue down the track. The Age's Malcolm Maiden says there's a connection between NAB's decision to restructure its UK operations and the Spotless concession to private equity suitor Pacific Equity Partners – a cruddy market wore both down. The Australian Financial Review's Matthew Stevens hits similar notes in his piece where he argues both NAB and Spotless have opted for the pragmatic approach in trying circumstances.

Speaking of Spotless, The Australian Financial Review's Chanticleer columnist Tony Boyd says the Australian sharemarket has a new king of shareholder activism, Allan Gray's Simon Marais, who was particularly outspoken against the Spotless board.

Between NAB and Spotless the business commentators had plenty to talk about after a prolonged period of RBA-centric copy. Today, however, something is actually happening at the Reserve Bank.

This morning, The Australian's mysterious economics columnist, operating under the pen name Henry Thornton, says the RBA should only cut rates by 25 basis points. The comprehensive argument focuses on the investment boom in mining and infrastructure, with one eye on the political troubles in Europe that reveal the extent of the continent's debt problems and the potential for another flare-up. And The Sydney Morning Herald's Michael Pascoe says the growing number of senior business figures who think this is the worst the Australian economy has had it in 30 year must've skipped the 1990-91 recession.

Elsewhere, The Sydney Morning Herald's Ian Verrender begins his piece on iron ore billionaire Andrew "Twiggy” Forrest by having a few digs at his fellow mining tycoon Clive Palmer. And finally, Fairfax's Ruth Williams is following the Australian Securities and Investments Commission on its investigation into research houses and the potential conflicts of interest they have.