Big job ahead as NAB chief starts work

National Australia Bank’s new chief executive Ross McEwan plans to hit the ground running on day one.

National Australia Bank’s new chief executive Ross McEwan. Picture: Stuart McEvoy.

Investors are urging National Australia Bank chief executive Ross McEwan to get across the bank’s regulatory risks, as the new CEO plans to hit the ground running on Monday morning on his first day in the job.

Mr McEwan will spend much of his first week at NAB’s helm on a grassroots listening and learning tour, but no doubt will also seek more detail on the bank’s compliance systems and engagement with financial crimes regulator Austrac.

The sector has been rocked by Austrac’s Federal Court action against Westpac, alleging 23 million breaches of the law and links to child sexual exploitation.

That led to last week’s exit of Westpac CEO Brian Hartzer, while chairman Lindsay Maxsted brought forward his departure date. Westpac may cop a penalty in the order of $1bn, eclipsing the record $700m fine paid by Commonwealth Bank last year.

Mr McEwan, who is credited with turning Royal Bank of Scotland around, is no stranger to regulatory issues and banks being in the political firing line.

In NAB’s annual report, the bank said it had reported “a number” of anti-money laundering and counter-terrorism financing compliance breaches to regulators and had responded to requests for information.

“The potential outcome and total costs associated with the investigation and remediation process remain uncertain,” it said.

“A negative outcome to any investigation or remediation process may adversely impact the group’s reputation and its business, financial position and results of operations.”

NAB’s identified issues including “certain weaknesses” with the implementation of the Know Your Customer requirements, other financial crime risks, as well as systems and process issues that impacted transaction monitoring and reporting. Alongside the Austrac issues, post-Hayne royal commission customer compensation programs and weak credit growth make for a very challenged environment.

NAB last month agreed to pay $49.5m to settle a class action over junk consumer credit insurance.

Investors think Mr McEwan will take a few months before outlining a new strategy and team, given he is an external appointment. When his predecessor Andrew Thorburn started in the CEO role in August 2014, he announced an executive shake-up on day one.

Mr Thorburn parted ways with the bank earlier this year after he and former chair Ken Henry became victims of the royal commission’s fierce criticism of NAB.

Allan Gray managing director Simon Mawhinney expects Mr McEwan will take a few months to bring together his top team and formulate a new NAB strategy.

“It is going to take some time,” he said, adding that NAB, like its rivals, had a big challenge to “regain a social licence to operate”.

Mr Mawhinney said in light of the Westpac scandal, NAB would revisit its compliance systems and its approach to anti-money laundering and other laws.

“Things need to be done; we can’t have Austrac breaches like Westpac has reported. These are complicated companies to manage with a massive regulatory burden. Someone has to make sure there are no cracks and if there are you’ve got to fill them.”

Mr McEwan will today meet his leadership team early in the day ahead of spending time with branch, business and call centre staff and a digital team that looks after the banking app.

A call with NAB’s top 80 managers is due in the afternoon and the following day, an Australian Banking Association meeting. Wednesday will include a video link-up with the entire bank.

“Successfully running a bank certainly has its challenges at the moment. The operating and regulatory environment continues to be quite difficult,” said Switzer Asset Management portfolio manager Shawn Burns.

“McEwan will have to make sure that the bank’s resources are appropriately allocated and that both operational and regulatory issues are adequately covered.”

Mr Burns said Mr McEwan would want to ensure the leadership team he put in place would be “appropriately skilled, incented and held accountable”.

Looking to placate investors and avoid a second strike ahead of this month’s annual meeting, NAB chair Phil Chronican has already flagged no 2019 short-term bonus payments for the executive team and an annual freeze on fixed pay.

Mr McEwan — an avid All Blacks supporter — was born in Hastings, New Zealand, but has a strong connection to this market given his father was Australian. He was also head of retail banking at CBA before joining RBS in 2013.

After being appointed in July, Mr McEwan said despite the damage inflicted on NAB during and after the royal commission he didn’t consider it a “broken bank”.

“We can repair the things that went wrong with this bank over the next few years,” he said. “We need customers trusting us ... it’s not a poisoned chalice.”

Other topics that will occupy Mr McEwan’s first few weeks in the role include NAB’s tier one capital levels, particularly in light of a key announcement due later this week from New Zealand’s central bank. He will also have input into whether to spin off or sell wealth division MLC.

NAB’s first quarter trading update in February may provide a platform for a strategy update.

NAB’s shares have rallied 7.6 per cent this year to $25.89.