NAB shares are now headed south in a big
way. NAB is in distressed play territory and
NAB shareholders should brace, brace. But no-one, least of all the ‘well
respected bank analysts’, should be in the least surprised.
The comeuppance of
this arrogant and incompetently managed self-styled ‘national champion’ has
been a long time coming, aided and abetted by hitherto easily pleased and
gullible institutional fund managers. There are now signs all that is about to

Australian institutional shareholders now
realize the mistake they made in not letting the entire NAB Board go when they
had the chance.

Retaining the same old discredited board
crew, at least in the short term, and empowering them to make new Board selections, must now seem cockeyed. The
question is whether the proverbial tea lady could do worse than the current
incumbents, new boys perhaps excluded.

New Chairman-in-waiting, Michael Chaney, is
likely to get the word sooner rather than later from leading institutional
shareholders – Michael, Wesfarmers succession is in place and the place is
ticking over nicely, don’t hang around, get over to NAB, light a fire under
‘war time’ CEO Stewart, take names, kick tails, finish cleaning out the senior
management and staff and give the APRA
‘voluntary administrators’ every reason to leave sooner rather than later.

And while you’re at it, get a new long term
CEO and send Stewart back to the UK to see what can be done about the UK
laggards. The hapless Ross Pinney, retrofitted to the UK, certainly needs some help there, probably
out the door judged on the state of the place.

Fixing the board is just the start. The new
board and CEO can then really go to town on putting in a believable capital
management and growth strategy for the bank. Not that the NAB is unbelievable
in these areas. It is just nonexistent and has been for a long, long time.
Surprising really.

NAB shareholders are musing on where $3
billion went on propping up NAB’s share price, at an average buying price
almost $5 per share greater than today.
It would habe made a nice dividend. Then there are all the other
disasters that have consumed the shareholders funds in a total bonfire now
approaching $10 billion and redolent of BHP’s darkest days.

And shareholders are increasingly bemused
about the basis for the rosy 8%-11% growth rates they were fed last year by
Frank Cicutto. As events have shown, there was no well founded growth strategy
and severe internal stresses were bubbling like an expectant volcano. Maybe
Frank Cicutto’s impressive Italian colonnades on his new pile blinded him from
reality. Hopefully, a multibillion dollar class action won’t materialize out of
the gloom for alleged false and misleading statements to the market pre-CEO

The bank’s ‘dynamic provisioning model’ is
now looking more like dynamic lifter. Another couple of billion of new capital may need to be poured in by
shareholders to cover the inevitable raft of write-offs and provisions likely
needed to restore the bank’s capital to
a credible level and position the bank for growth, seriously.

Something’s got to give, as they say in the
classics. The first thing will most likely be the dividend. Maintaining the
current dividend payout rate? Those old romantics are dreaming. Look for a 20%
cut, at least. That is, unless shareholders would like to see another few
dollars stripped out of the share price as growth runs out of capital fuel and
the bank finds second reverse gear.

As for wealth management, Mike Chaney can
be expected to question director Tomlinson why this $6 billion bright spot of
shareholders funds produces a measly $350 million odd of operating profit
(excluding the funny money unreality of insurance write-ups, write-backs, smokes
and mirrors that no-one will admit they don’t understand).

And in the meantime, who knows what might
yet crawl out of the bank woodwork. The bank has form. All up, a good platform for future growth –
what say a return to the early 2000 range of $20-$25 per share, with plenty of
volatility along the way before things get better. Let’s hear it from the
respected bank analysts.

Peter Fray

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