The sun will soon shine for Cameron Clyne

The National Australia Bank chief's performance is coming under increasing pressure... but there's a reason his fortune is about to turn.

Top bankers can be forgiven anything… anything that is except losing money, which is why NAB's Cameron Clyne will come in for an extra dose of opprobrium today for his moderately improved $8.8 million pay package revealed at yesterday’s AGM.

Remarkably, the chief executive is looking at a take home package awfully similar to the less well known Brian Hartzer at Westpac. Hartzer got $8.6 million for signing on with Westpac even though he does not run the bank: he is ‘head of financial services’. And his arrangements were made in debatable circumstances, where the Australian bank generously compensated him for possible money he might have made at his former employer, London-based RBS.

The irony of these comparable remuneration packages will not be lost on shareholders. Hartzer’s master stroke was to escape the UK and relocate to the world’s richest banking system. Clyne’s singular failing was that in the early stage of his tenure at NAB (He was appointed in January 2009) Clyne did not get NAB out of the UK, where it has since endured $1 billion in writedowns and restructuring costs, not to mention an ongoing drag on overall profits.

Behind the blizzard of earnest ‘achievements’ relating to asset quality and administrative competency listed by Clyne at yesterday’s AGM were two hard truths:

1. His bank has reported a 22 per cent plunge in profits and it’s not just due to problems in the UK. For example, there was also declining profitability in business banking across Australia due to bad debt blowouts.

2. The ‘break-up’ campaign which lifted NAB’s market share and engendered such excitement around the brand a year ago has fizzled to the point where NAB now cuts its rate in perfect unison with its peers Commonwealth Bank and Westpac. (Indeed, ANZ still has a chance to do a real 'break-up’ with its peers if decides to pass on a full 25 basis-point cut to mortgage rates, as signalled by the Reserve Bank.)

But Clyne's position today is a lot stronger than it might appear at first glance. Importantly, Clyne has the public support of his chairman Michael Chaney, who said yesterday Clyne is doing "a first class job". This support is not to be sneezed at: Chaney has tied his future to Clyne’s, and Chaney more than anyone else knows if Clyne is doing a decent job or not.

Clyne’s brighter outlook comes as a result of what did not happen in 2012. Three of the Australian banks – ANZ, Commonwealth and Westpac – managed share price improvements in the order of 20 per cent over the last year: This powerful sector performance underpinned half of the wider 10 per cent improvement across the ASX 200. (Commonwealth is now the seventh largest bank in the world by market capitalisation.)

NAB on the other hand had a very modest share price lift of about 4 per cent in the last 12 months – already some stockbrokers are suggesting ‘rotating’ bank holdings from Commonwealth through to NAB.

With bank profit forecasts looking lukewarm the Melbourne-based bank stands out because it has the highest yield (7.45) and the lowest p/e (11.6 times). In other words, Clyne's high-yield bank is the last strong 'dividend play' left to chase among the major banks. As long as he can now contain the UK bank, the sun is about to shine on Cameron Clyne.