‘Battery Man’ Andrew Thorburn plans $1.5bn NAB recharge

NAB boss Andrew Thorburn is planning to defy market concerns to invest $1.5bn extra in revamping the bank.

NAB chief Andrew Thorburn. Illustration: Sturt Krygsman

NAB boss Andrew Thorburn is planning to defy market concerns to invest $1.5 billion extra in revamping the bank, despite lower revenue growth.

The Australian banks have enjoyed 27 years of economic expansion. Indeed, this benign environment arguably contributed to the complacency so tragically evident at CBA.

All companies need to constantly change, which is what Thorburn is doing — selling his wealth management operation as part of an effort to halve the number of products on offer to 300.

There is a familiar ring to his mantra, with his Melbourne neighbour Shayne Elliott at ANZ also pushing the simpler, better line, albeit around a digital revamp.

Trouble is, right now the economy is stuck in a low-growth outlook, with the prospect of post-royal commission controls set to slow loan growth even further through the tightening of lending standards.

NAB is talking about cost growth over the next few years of as much as 8 per cent, or $1.5bn, for long-term cost savings of $1bn a year.

CLSA analyst Brian Johnson confided yesterday that it is not a great return and the numbers don’t make a lot of sense, to which Thorburn responds: “He is wrong to use such a short time line. We are revamping the bank and the returns will hopefully be sustained for a longer period.”

The bank is set to cut 4000 ­people from the 33,000 employed in 2017 and staff accounts for 58 per cent of costs, so you would think even in the short term the savings would be greater.

Maybe the bank was hoping for better revenue growth to offset the investment cost increases, but that doesn’t look like happening any time soon.

Thorburn, like Elliott, earlier made clear yesterday revenue growth was weak and not expected to improve any time soon. His cash earnings fell 16 per cent to $2.8bn on a 0.7 per cent increase in revenue to $9.1bn in the half.

Unlike ANZ, he didn’t have the benefit of asset sales to boost reported numbers. Little wonder the stock price was down 0.8 per cent at $29.31 yesterday.

Banking is tough right now and the royal commission spotlight isn’t helping. But as usual, Andrew “Battery Man” Thorburn was upbeat, painting it as an opportunity more than a threat.

What better opportunity could there be to revamp bank culture, and he like the rest of the industry is taking careful note of this week’s APRA report on CBA’s cultural failings. As he confided yesterday: “When it is all said and done, there is more said than done”.

Battery man plans on proving that homily wrong.

Lemmings rush again

When this column coined the phrase big bank lemmings, it certainly used the rush into wealth management as a case in point, including CBA’s $10bn Colonial deal in 2000, followed soon after by NAB’s $4.6bn acquisition of MLC from Lendlease.

Westpac acquired BT two years later and ANZ played around the fringes, but the net ­result was at best underwhelming.

The rationale was that superannuation was the growth vehicle and financial advice, coupled with funds management expertise, was a natural extension for the in­dustry.

Instead, the vertical integration, combined with poorly controlled remuneration policies based on sales commissions, has landed the industry in more ­trouble than it had planned.

Bank bureaucracies and entrepreneurial fund managers were never an easy mix. The lemmings are now racing each other to offload the wealth arms acquired nearly two decades ago.

If you work on an acquisition multiple of 15 times, NAB will collect $3bn from the sale which after the earlier sale of 80 per cent of MLC Life, a reinsurance deal amid other deals, arguably puts the bank $900 million ahead which is not a great return. Especially given the grief the conflicts of interest have caused.

NAB is retaining its link to the top end of town through its ownership of the House of Were.

Easy targets

The official returns are now in from two of the five banks hit by the government’s bank levy last year with NAB saying yesterday it cost it $183m and ANZ earlier in the week $177m.

Macquarie will today provide more detail but by doubling the smaller bank returns the $720m tax grab on two banks shows the government should hit its target of raising $1.6bn a year from the ­industry.

The only justifications for the heinous exercise being everyone hated the banks, the government could, and they did get a benefit after the GFC with credit-rating backing.

In Britain, company tax cuts were granted to the rest of the market except the banks so they now pay a 7 per cent higher rate to other companies.

Just whether Scott “Cry Me a River” Morrison plans a similar move will be known next week.

NAB said yesterday the direct costs of the royal commission this year would be $40m, with ANZ confiding its cost would be $50m.

Given the 16 per cent underperformance of bank stocks in the past year, increased regulation and loss of business due to fear of more snafus, this is but a drop in the ocean to the real costs.

The good news is the offshore debt markets are yet to downgrade the Australian banks.

The expected round of debt raisings following the profit releases started with ANZ earlier this week raising $2.6bn for five-year notes at 90 basis points above benchmark rates.

This is considered a creditable performance and NAB will follow shortly as part of the big Australian banks’ $125bn a year in debt raisings.

Bank spreads over overnight rates have actually eased a touch in recent weeks, which takes the funding pressures off in terms of potential imminent out-of-cycle housing interest rate rises.

Jumping the gun

ASIC has pre-empted Orica’s results due out on Monday by congratulating the company on increasing provisions on its Port Botany remediation by $114.7m.

No guidance was given as to what the final figure was and after seeking clarification yesterday the notice was taken down from the ASIC website with no further guidance on offer.

Orica has already flagged increased provisions against Port Botany, its US tax liability and Minova totalling about $300m.

But the full details are not due for release until Monday and the corporate plod was too quick to claim credit.

While on Orica and environment matters, it is worth noting a second shipment of HCB (hexachlorobenzene) has gone off to Finland as flagged this year. It will take Orica five years to get rid of the HCBs but at least it now has an avenue to reduce the waste.

HCB is a by-product of the manufacture of a solvent used for dry cleaning, among other purposes, in a plant closed 37 years ago.