Fundies meet at McEwan

Shares of National Australia Bank outperformed its main competitors this Friday, gaining 2.1% to close at $ 27.48

Although the NAB share price has kept pace with the other major banks over the past three and five years, it has had the worst performance in 10, 15 and 20 years with a significant margin.

Mr. Patkar stated that the decision to use "external hiring was the right one" and that the uncertainties surrounding the appointment related to the timing and the risk that a new CEO could deflate with write-downs. and provisions.

"The sooner the better," said Patkar about the timing. The National Australia Bank said that Mr. McEwan would become CEO in April 2020 once his current obligations with RBS were completed.

Cultural change needed

Brendon Sproules, an badyst at Citi Banking, said the "lengthy schedule" meant the bank would not have a permanent CEO for about 12 months, which could hurt its "business momentum," which was better than other banks.

"In particular, mortgages have already slowed down, and the slowing economic environment is expected to weigh on business loan dynamics," Citi said.

But the badyst said that Mr. McEwan's experience as CEO of RBS – once described as the "most difficult job in the banking sector" – had made him a strong candidate.

"For NAB, its experience in managing regulatory changes, while reducing operating costs, should give investors an idea of ​​what they can expect."

Jamie Nicol of Brisbane-based fund manager DNR Capital said his experience with RBS was similar to that of NAB in which "a culture change was needed".

"It's a very positive development and the opportunities are great for Ross, the foundations are there," he said.

Alphinity portfolio manager Andrew Martin said most Australian investors held McEwan in high esteem and had a positive memory of being at the head of the Commonwealth Bank's retail bank before to miss the role of CEO of Ian Narev in 2012.

"Given his experience and track record, he could have chosen his roles around the world," Martin said.

"That says a lot about Phil Chronican and it's good for NAB that he has taken up the challenge."

British banks here three to five years

Mr Martin said that Mr McEwan 's experience in the United Kingdom in terms of relations with governments, regulators and an environment characterized by low interest rates and reduced returns could be expected. prove useful.

This view was shared by UBS badysts. They told their clients that the UK banking sector was three to five years ahead of Australia. UK lenders have had to deal with tighter regulation, increased competition and low interest rates, in addition to initiatives such as open banking systems and executive liability regimes.

"We believe that Ross McEwan's experience in transforming RBS into this environment gives him a unique insight into the challenges ahead," said UBS badysts.

NAB management had "a lot of work to do" to turn around the bank, which would weigh on shareholder returns, UBS said. But the appointment of Mr. McEwan was a "big step in the right direction".

Mark Nathan, of Regal Funds Management, said he favored three factors: he had experience of behavioral problems in the UK, he was an external candidate with a "fresh look" that could be more aggressive in solving the bank's problems, and he was very familiar with the Australian market since joining the CBA.

"He's a great candidate and it's a coup d'etat," said Nathan.

"He has to make sure that nothing within the bank will draw unnecessary regulatory attention and start improving its competitive position through further simplification."

Work time

Nicol, of DNR, acknowledged that the banking sector "was under fair pressure" when Mr. McEwan badumed this role.

As the Reserve Bank lowered interest rates to 1%, banks' profit margins were severely tested.

The lending portfolio of National Australia Bank is more focused on business banking. Mr Nicol from DNR said that this could give him a relative advantage in an environment where households are highly indebted and have limited borrowing capacity.

"Business banking is under-proportioned to consumers, which is an advantage."

According to Mr. Martin, Mr. Alphinity, the National Bank's business bank had been "reinvigorated" under former President Andrew Thorburn and that its profit margins were holding up better than those of its rivals because of its largest share of business loans.

"The pressure is on the mortgage part of the banks.Luckily, they are underweight, but all Australian banks have a lot of mortgages, so everything is relative."

Mr. Nathan agreed that business banking was the "sustainable market segment" even though the residential market had rebounded.

The banking sector, he said, remains a challenge for investors.

"We have at least 6 to 12 months of declining profits, but the returns are favorable."