What next for Australian banking’s emasculated gorilla?

Forget the market reaction to the interim banking profits so far, the industry is alive and well. Except the National Australia Bank, its announcement this week will show just how far it’s fallen behind.

Yes, there’s been some funny old reactions among investors to the three major bank profits so far this reporting season. ANZ down, St George up, Westpac down. All three managed better than expected results, but the boys and girls in the analyst clubs and the big shareholders wanted more, like Oliver Twist, and sold off these big two and rewarded Gail Kelly’s dragonettes. Go figure.

But if there’s anything the three so far have proved, it’s that the local industry is alive and well. Housing is showing signs of easing, especially in the investor-driven negatively geared end. Interest margins might be falling, which is worry all those analysts, but non-interest income remains strong, the loss of credit card intercharge fees is being made up by gouging us in other ways and from other areas of existing business. In short the Cartel Rules, OK?

Yep, but there’s an empty place at the trough. The NAB, the usual leader in gouging, is off the pace, out of the room and behind the game. The gorilla is no longer in the room.

In fact the board kafuffle over Cathy Walter’s view of responsibility and Graeme Kraehe’s view of transparency is just a sideshow to what should be the main concern about the NAB. It has lost its way in banking in Australia and is being out competed by the others.

That’s now been settled with Cathy Walter’s decision Thursday to vamoose. Chairman Kraehe stays till at least the middle of next year and the process of renewal resumes.

Forget also the forex options losses of $360 million. That’s really the last and most visible outcome of what’s gone wrong.

In fact its what Charles Allen, Frank Cicutto, Cathy Walter, Ken Moss, Graeme Kraehe and all the others should be taken to task for and bagged endlessly over. In the midst of the best banking market for years, the NAB has managed to miss the bus,

The example of the Sydney Crikey reader who sold a business, finished his business with the NAB and is still be being billed for a non-existent account. Examples like that make it much easier to understand the problems. Remember the last missive from departing CFO Richard McKinnon. That profit warning issued on April 16. This is the key warning “Cash earnings from banking operations are expected to be around 12 per cent lower than the March 2003 half.” We expect to see a modest decline in income levels reflecting margin decline and changing asset mix”.

“Financial Services Australia is expected to show solid profit growth. Loan growth has been strong. However as a result of margin decline first half income levels are expected to be in line with the September 2003 half.”

Now the underperforming UK operations are a hindrance as are the necessary pension top ups there and the higher Australian dollar. But for the local banking business to be aiming for a steady result on September, and overall banking to be down 12 per cent on the previous corresponding period, shows the real extent of the decline of the NAB. Incompetence and poor management has taken its toll.

Look at it this way. ANZ and Westpac both reported margin decline in their interims (that’s partly why the market’s again’ them at the moment). So too did St George, but its business mix is changing away from housing. Slowly, but is changing.

Despite this margin compression Westpac and ANZ both reported better than expected overall banking results and results from the home lending area. On all measurements, cash, economic, you name the profit measure this trio did better than expected. Costs were controlled. Asset mix was monitored closely and adjusted when needed.

Some commentators have written that Frank Cicutto and Charles Allen went too early over the forex debacle. Maybe they did, but looking at what the NAB says it expects to report in the coming week, and what the ANZ, ST George and Westpac have all reported in the same market, perhaps Cicutto and Allen went for the wrong reason.

In the absence of any rational explanation for this about to be reported underperformance, there should be a feeling that National Australia Bank has been rudderless for the best part of the past three years.
Silly adventures in the US with Homeslide, moving deeper into Britain, and before that, under Don Argus, trying to snuggle up to firstly AMP and then ANZ, confirms a bank driven by the deal and not be the usual things of banking, borrowing and lending money to make a profit.

The NAB’s appalling boardroom performance has been a proxy for a lot of things over the past three to four years, but it hasn’t been about underperformance in its basic businesses. That’s the real crime here for shareholders. Not the forex options and the ‘she goes, I stay” posturing of Ms Walter, Mr Kraehe and others.

Folks it’s banking, not -anking!

Now that result will be announced in Sydney less than 24 hours after the 2004-005 Federal budget is delivered by Peter Costello.

So, is there a small attempt of perhaps slipping out some bad news and hoping that the impact will be muted by the budget reaction and follow up that will resonate that day, next Wednesday?
No, the NAB wouldn’t try to be that tricky, would it?

Peter Fray

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