NAB needs an outsider for new CEO, say analysts

Analysts have thrown plenty of hats into NAB’s CEO ring, many saying it needs the clean pair of hands of an outsider.

Westpac’s Institutional Bank chief executive Lyn Cobley. Picture: Renee Nowytarger

Under-fire National Australia Bank’s focus has shifted to a global search for a new chief executive, as its chaotic week comes to an end and analysts assess the potential disruption and fallout.

Several analysts are expressing a preference for an outsider to take the reins after CEO Andrew Thorburn fell on his sword on Thursday. The exit — which formally takes place at the end of the month — coincided with an announcement that chairman Ken Henry would also leave NAB once a new CEO was in place.

Names tipped to be on a potential external candidate list include Medibank CEO and former NAB finance chief Craig Drummond, Westpac’s institutional bank boss Lyn Cobley, Royal Bank of Scotland CEO and former Commonwealth Bank executive Ross McEwan, and Westpac customer chief and former NAB executive George Frazis.

Another name that has been bandied around is CBA non-executive director Rob Whitfield, a director of NSW Treasury Corporation and previously an executive at Westpac.

Internally, NAB business banking boss Anthony Healy and customer boss and former NSW premier Mike Baird are said to be the frontrunners. Mr Baird didn’t rule out throwing his hat in the ring for the CEO role on Friday, declining to comment when asked the question.

The leadership shake-up came after Commissioner Kenneth Hayne took aim at NAB and Mr Thorburn and Dr Henry personally in his final landmark report on Monday. After initially vowing to stay on, Mr Thorburn and Dr Henry announced their departures on Thursday.

NAB non-executive director and former senior ANZ and Westpac executive Phil Chronican will serve as acting chief executive. Mr Chronican is said to have today participated in an executive leadership team conference call.

NAB’s shares were 1.5 per cent lower at $24.55 in afternoon trading.

Analysts see a much tougher period ahead for NAB after this week’s turmoil.

JPMorgan analysts told clients today the leadership change would “extend a period of heightened instability for NAB”.

“Most of its executives having been in their respective roles for a year or less. NAB has named well-respected and highly experienced current board member Phil Chronican as interim CEO role while a global search is conducted for a permanent replacement,” they said.

“We hope the board will consider a broad range of candidates, with the potential for an external hire to take a fresh look at the culture of the organisation.”

CLSA analyst Brian Johnson said an external CEO was preferable to take the NAB reins.

“NAB must address customer failings, but realise the latent shareholder value inherent in its retail banking franchise and leading SME franchise,” he said.

“We think an external CEO appointment is preferable with previous NAB CFO and MPL CEO Craig Drummond a possible candidate — Drummond knows what needs to be done.”

Macquarie Group banking analyst Victor German said: “The removal of the CEO and chairman in the middle of a major transformation program increases execution risk, in our view.”

NAB’s first-quarter trading update was also released on Thursday, showing a 3 per cent drop in its cash earnings to $1.65 billion. The bank said it faced a challenging environment in the first quarter, although revenue was broadly stable with “good growth” in housing and small to mid-sized business lending.

The update said NAB expected to delay the stockmarket spin-out of its MLC wealth management business until next year due to the Hayne royal commission creating an uncertain ­operating environment.

“In the context of challenging operating conditions, NAB delivered a respectable 1Q19 performance,” Macquarie’s Mr German said.

“NAB’s weaker capital position relative to peers, in our view, is likely to result in a need for a dividend cut and ongoing DRPs (dividend reinvestment programs).”

JPMorgan analysts labelled the trading update as a solid result.

“The trading update was a sideshow to the main event but showed continued solid trends nonetheless,” they said. “Flat revenue for the quarter was a solid outcome versus Commonwealth Bank, despite NAB not repricing its mortgages until after the end of the period.”