Thorburn’s legacy hinges on his ability to revitalise NAB’s core

Andrew Thorburn appreciates that the nature of the eventual judgments on his tenure will hinge largely on NAB’s ability to revitalise its core SME banking franchise and realise the untapped potential of its wealth management business. (Tomohiro Ohsumi/Bloomberg via Getty Images)

Having smoothly executed an exit from the UK ahead of Brexit and sold 80 per cent of National Australia Bank’s capital-intensive and underperforming life insurance business, Andrew Thorburn might have been expected to give the slimmed-down group a breather and a chance to settle.

Instead, he has announced a major management and corporate restructuring that will greatly simplify the organisation. In the process three very senior and long-serving executives will depart and two of the group’s fastest-rising executives will be given greater responsibilities.

Thorburn made it clear two years ago when he was appointed NAB’s chief executive that he was going to move swiftly to deal with the perceived trouble spots within NAB — the UK bank and NAB’s insurance operations were the two key problem areas — and he has.

The strategic ambition was to pare NAB back to its core Australasian business centred on its sector-leading business bank.

The successful demerger of Clydesdale (now CYBG Plc) — not only was it executed relatively seamlessly but, even post Brexit, NAB shareholders who retained their shares in the UK business are nearly 40 per cent ahead of the price at which shares were issued to UK institutions for CYBG’s listing — was the major event. It ended decades of a NAB presence, and ambition, in the UK.

The other big structural change, not quite yet completed, was the sale of 80 per cent of NAB’s life insurance operations to Japan’s Nippon Life for $2.4 billion. NAB retains 20 per cent and will have a 20-year distribution agreement with Nippon.

That deal extracts a big lump of capital out of NAB’s wealth management operations and dramatically simplifies it and reduces its capital intensity going forward.

What’s left after those two deals (and the sale of a modest presence in the US) is a smaller and more geographically focused business in Australasia whose performance had, perhaps because of the distractions and the drag on returns on capital of the UK and insurance operations, been less than stellar.

Thorburn appreciates that the nature of the eventual judgments on his tenure will hinge largely on NAB’s ability to revitalise its core SME banking franchise and realise the untapped potential of the wealth management businesses that were built via the 2000 acquisition of MLC and then bulked up further by a string of acquisitions under Thorburn’s predecessor, Cameron Clyne.

There have been some promising early signs.

In his initial management reshuffle after becoming CEO, Thorburn elevated Angela (Angie) Mentis from her role as general manager of the business bank to head up the unit.

There have been early signs of improving performance within NAB’s previously-stagnating business bank, which has been lifting its revenues and earnings within a low-growth and very competitive environment after a big investment in business bankers. While there has been an increase in its cost base, the increased aggression hasn’t had any noticeable deleterious effect on NAB’s credit quality.

Mentis is a winner from the latest restructure, with all of NAB’s business banking and private banking operations now brought under one umbrella. Her new title is Chief Customer Officer, Business and Private Banking.

The other obvious winner is Andrew Hagger, who has overseen NAB’s private wealth businesses — and overseen a dramatic lift in their financial performance — since 2013. He will now have responsibility for consumer banking and private wealth with the title Chief Customer Officer, Consumer Banking and Wealth Management.

Thorburn has created a new “customer-facing” unit, corporate and institutional banking, which combines NAB’s corporate and institutional activities with its markets operations. A search will be undertaken for its head, with Cathryn Carver acting Chief Customer Officer.

There are also some changes to the non-customer-facing departments — products and services, technology and operations — while the risk function will now include legal and governance and the finance, HR and Bank of New Zealand units are unaffected.

The new titles for those customer-facing businesses betray the intent. There is an obvious and heavy emphasis on customers in the new titles.

If NAB is to generate competitive returns within an environment that is looking tougher for businesses and consumers and, with rates low and likely to fall further and capital requirements higher and likely to increase further, it has to win more business from its existing customer base and its competitors.

That means it has to be more responsive, more dynamic and more customer-oriented. All the banks understand that and have the same ambition. Success, or otherwise, will be in the execution but certainly Thorburn’s intent and the signal he is sending to his organisation is clear.

The new restructure will result in a simpler and leaner structure, and there have been some casualties among Thorburn’s leadership team.

Michaela Healey (governance and reputation), Renee Roberts (enterprise services and transformation) and Gavin Slater (personal banking) are departing. All have been long-serving NAB executives — Roberts has been with the group in a wide variety of roles for 25 years. Healey has indicated she will retire but will inevitably, given her background in governance, be in demand as a non-executive.

Management restructures can sometimes been the easy option, a distraction from what’s happening within the business — or a response to poor performance. Thorburn has demonstrated a willingness to embrace tough decisions and a relentless commitment to change.

With NAB’s Australian operations flickering back into modest growth mode, the changes, and their nature, do appear to be a very real attempt to generate increased focus and momentum.

Thorburn would be well aware that, without the UK and insurance operations to distract and disguise the underlying condition of NAB’s core, there can be no excuses. The pared-down core, particularly the business bank, has to perform and has to generate growth despite the external environment.