National Australia’s New CEO Seeks to Cut U.K. Earnings Drag
National Australia Bank Ltd. (NAB)’s next chief executive officer Andrew Thorburn said he aims to cut the lender’s exposure to U.K. commercial property and focus on Australia and New Zealand when he takes the helm in August.
Thorburn, 48, who was named yesterday to succeed Cameron Clyne, said in an interview he will “gradually reduce” the U.K. unit’s loans portfolio, valued at 4 billion pounds ($6.7 billion) in September, and continue a strategy of limiting the drag on earnings “and on our reputation.”
Australia’s largest lender by assets has failed over the past decade to bulk up or exit its business in the U.K., where mounting bad debts contributed to its first profit drop in three years in 2012. Thorburn, who oversaw higher earnings at the NAB unit in New Zealand that he’s led since 2008, also faces increased competition in Australia, where the bank is the biggest corporate lender and fastest-growing mortgage provider.
“Thorburn has a big job in front of him,” David Ellis, a Sydney-based banking analyst at Morningstar Inc. said by phone yesterday. “Not the least is the U.K., and trying to defend the business bank market share in Australia.”
Clyne, 46, who has two children aged eight and 12, said in a statement yesterday the CEO role he assumed in January 2009 had taken a “personal toll” and he was stepping down to spend more time with his family.
He inherited the top job in the depths of the global financial crisis after NAB reported losses of as much as A$830 million ($766 million) on credit-market investments.
Under his stewardship, the bank increased its share of Australia’s mortgage market to 15.3 percent as of Aug. 31, up 2.5 percentage points from four years earlier, and is the third-largest provider of home loans.
Britain’s foundering economy torpedoed Clyne’s plans to sell the U.K. division or expand through acquisitions, leading him to transfer its real estate loans to the group balance sheet and shrink the unit by cutting about 1,400 jobs.
NAB’s shares have been weighed down by its U.K. operations. The stock, which was down 0.1 percent at 10:17 a.m. in Sydney to A$35.35, has risen about 69 percent under Clyne’s leadership, trailing the S&P/ASX 200 Banks index, which has more than doubled in that time.
The bank is the second-worst performer this year among Australia’s four biggest lenders. Its 1.5 percent gain compares with Westpac Banking Corp.’s 6.2 percent climb, a 3.3 percent increase for Australia & New Zealand Banking Group Ltd. and a 1 percent drop for Commonwealth Bank of Australia.
NAB’s return on equity, a measure of how well the firm reinvests earnings, was 14.5 percent, lower than its three competitors’ average of 16.5 percent, according to the lenders’ filings for their 2013 fiscal years.
The bank’s net interest margin, or the profitability of its lending operations, was at 2.02 percent, compared with its rivals’ average of 2.16 percent. NAB’s share of the corporate lending market dropped to 24 percent in August from 24.8 percent in September 2012, the filings show.
Clyne’s departure is the latest senior executive change at the bank. Craig Drummond, a former head of Australian operations at Bank of America Corp.’s Merrill Lynch unit, was named chief financial officer in November; Gavin Slater began leading the retail-banking unit in April 2013, while Andrew Hagger took over its wealth-management unit at the same time.
“Cameron was a strong CEO in a challenging period for NAB and I’m disappointed that he is going and that the bank will have a new CEO and CFO pretty much at the same time,” Mark Nathan, managing partner at Sydney-based Arnhem Investment Management, which controls about $3.5 billion, said by phone. “There’s still work to be done at NAB with the big challenge being its U.K. operations.”
The bank’s U.K. commercial property portfolio is “a complex issue,” Thorburn said. “It’s a challenging market. It’s going to take whatever time it takes to do it properly.”
Before being appointed CEO of Bank of New Zealand in 2008, Thorburn was executive general manager of retail banking at NAB for three years, according to yesterday’s statement. His replacement at BNZ will be announced in due course, NAB said.
Thorburn acknowledged the pressures of executive life and said he was ready for the challenge. The father of three children has more than 27 years of industry experience.
“I’ve got a strong marriage, our kids are young adults now, they are at university,” Thorburn, a backup drummer for his local church, said by telephone. “I know it’s important to get a good team and get real strength around you. Keep healthy and strong and my faith is important to me -- that’s another pillar.”
NAB Chairman Michael Chaney said on a conference call yesterday the bank was “looking for somebody with energy, creativity and innovation skills to take us forward.”
Thorburn “demonstrated that in New Zealand, in what is often a difficult economy,” Chaney said. “He achieved ever increasing profitability.”
The unit’s cash earnings increased to NZ$788 million ($672 million) last year from NZ$557 million in 2008, as deposits grew to NZ$38 billion from NZ$24 billion, BNZ said in a statement on its website.
“Thorburn is a motivating and inspirational type of leader,” said Morningstar’s Ellis, who worked with Thorburn at St George Bank, which was acquired by Westpac in 2008. “He’s the type who can get people on board and work collaboratively.”
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