National Australia Bank (abbreviated NAB, branded nab) is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB was ranked 21st largest bank in the world measured by market capitalisation and 41st largest bank in the world as measured by total assets in 2014. NAB operates 1,771 branches and service centres and 4,578 ATMs across Australia, New Zealand, UK, USA and Asia serving 12.7 million customers.
NAB has a "AA-" long term issuer rating by Standard & Poor's.
Business Overview
The National Australia Bank Group is organised into nine divisions, spread across four geographic regions.
Financial results
Sourced from NAB financial results:
While NAB operates in several jurisdictions globally, it earns the bulk of its revenue from its Australian operations. The bank owns two retail/commercial banks in the UK, Yorkshire and Clydesdale. In NZ it operates BNZ and in the US it owns a small agribusiness focussed bank called Great Western. The Business Banking and Wholesale divisions of NAB have offices in London, New York, Hong Kong, Singapore, Tokyo and Shanghai. These are aimed at servicing the needs of corporate and institutional customers, which include market risk management (e.g. foreign exchange or interest rate hedging), trade finance and bond issuance.
Revenue by geography in 2014 is summarised in the table below.
Brands
The group uses multiple brands to market its various products in different geographies and to different segments:
History
Early history
National Bank Limited was formed in 1893 and, until 1 October 1981, it traded as The National Bank of Australia Limited, before merging with the Commercial Banking Company of Sydney Limited and changing its name to the National Australia Bank.
National Bank of Australia
In 1858, Alexander Gibb, a Melbourne gentleman, enlisted Andrew Cruickshank, a local merchant and pastoralist, to raise the capital to establish National Bank of Australasia with headquarters in Melbourne. The legal work establishing the bank was performed by King & Wood Mallesons. Cruickshank became its first chairman while Gibb left after being passed over for the position of General Manager. The bank opened its first branch in South Australia the same year. Expansion to other Australian states followed, with branches opening in Tasmania (1859), Western Australia (1866), New South Wales (1885) and finally Queensland (1920).
An early branch established in Mauritius (1859) closed within a year, but a London branch (1864) was established to handle financing and payment for Australian exports of wool, gold and other commodities, and imports to Australia, was more successful.
National Bank of Australasia was one of many banks that closed its doors during the banking crisis of 1893. Director John Grice was active in the crisis, from which the bank re-emerged as a public limited company, incorporated on 23 June 1893.
For the next half century, growth was stimulated by a number of acquisitions:
- Colonial Bank of Australasia (est. 1856) in 1918, bringing additional branches in Victoria and New South Wales.
- Bank of Queensland in 1922, with branches in Queensland, New South Wales and Victoria. The Bank of Queensland was itself result of the merger in 1917 of Royal Bank of Queensland (est. 1886) and Bank of North Queensland (est. 1888).
- Queensland National Bank (est. 1872) in 1948, with branches in Queensland, New South Wales and Victoria.
- Ballarat Banking Company (est. 1865) in 1955
The bank opened a representative office in Tokyo in 1946, later upgraded to a branch in 1985. The bank's overseas interest expanded more rapidly in the 1970?s. It opened a branch in Singapore in 1971, and representative offices in Jakarta (1973) and Hong Kong (1974). It took minority interests in merchant banks in these locations at the same time, and in Hong Kong established a 50-50 joint venture merchant bank with Mitsubishi Bank and Trust, but withdrew from these arrangements in 1984. Its first US presence was established in 1977 with a branch and an agency in Los Angeles that closed in 1993.
Commercial Banking Company of Sydney
On 8 September 1834 the Sydney Herald carried a notice titled "Commercial Banking Company of Sydney" proposing the establishment of a new bank. It began operations on 1 November 1834 and in 1848 was incorporated by an Act of the New South Wales Parliament. Sir Edward Knox was the first Bank Manager and later a director. Thomas Barker (born 1799 London, England, died 1875 Bringelly, New South Wales), a manufacturer, engineer, politician, landowner and philanthropist was a notable director and chairman.
The CBC grew to service the expanding pastoral and farming industries of the then Colony of New South Wales.
Merger and rapid overseas expansion
In 1982, National Bank of Australasia Limited merged with The Commercial Banking Company of Sydney Limited to form National Commercial Banking Corporation of Australia Limited and subsequently changed its name to National Australia Bank Limited (NAB).
The expanded financial base of the merged entity triggered significant offshore expansion over ensuing years. Representative offices were established in Beijing (1982), Chicago (branch 1982), Dallas (1983), Seoul (1983, upgraded to a branch in 1990), San Francisco (1984), Kuala Lumpur (1984), Athens (1984, closed 1989), Frankfurt (1985, closed 1992), Atlanta (1986), Bangkok (1986), Taipei (1986 upgraded to branch 1990), Shanghai (1988, closed 1990), Houston (1989) and New Delhi (1989).
In 1987, NAB bought Clydesdale Bank (Scotland) and Northern Bank (Northern Ireland and Republic of Ireland) from Midland Bank. It rebranded Northern Bank branches in the Republic of Ireland to National Irish Bank and changed both banks' logos from that of the Midland Bank. In 1990, NAB bought Yorkshire Bank (England and Wales).
Further acquisitions followed - Bank of New Zealand in 1992, which at the time had about a 26% market share in the New Zealand market, and Michigan National Bank (MNB) in 1995. NAB had earlier rationalised its operations in the US and closed its offices in Atlanta, Chicago, Dallas, Houston, and San Francisco in 1991.
This period of rapid expansion through acquisition concluded with the purchases in 1997 of HomeSide Lending, a leading US mortgage originator and servicer based in Florida, and most significantly, the acquisition in 2000 of MLC Limited (and related MLC entities) for $4.56bn, one of the biggest mergers in Australian corporate history.
NAB encountered a difficult period in the period 2000-2005. In 2000, NAB sold Michigan National Bank to ABN AMRO, then in 2001 sold HomeSide's operating assets for US$1.9b to Washington Mutual, the largest US savings and loan company, as well as the mortgage unit's loan-servicing technology and operating platform.
Executive changes
The foreign currency trader fraud was the catalyst for the resignations of CEO Frank Cicutto and Chairman Charles Allen. The resignations were preceded by a Board revolt where Catherine Walters emerged as a whistle blower citing serious culture issues at the company having led to the string of failures.
Frank Cicutto was CEO of NAB from 1999 to 2004. The Australian economic environment during his leadership was stable and productive after 17 consecutive years of economic growth since 1992, averaging 3.3 per cent per annum.
In February 2004, John Stewart was appointed CEO of NAB following the sacking of Frank Cicutto. John proceeded with a far reaching re-organisation of the company along regional lines leading to the appointment of Ahmed Fahour as the CEO of Australia in September 2004.
In 2005, NAB announced a cut of 2,000 Australian jobs as part of a global cost-cutting program with the intention of cutting around 4,200 positions - about 10.5% of its total workforce globally.
It began to outsource back office positions offshore, beginning with a pilot with 23 jobs from the accounts payable department in Melbourne going to Bangalore, India in an agreement with Accenture. Later that year, it sold Northern Bank and National Irish Bank to the Danish Danske Bank. Over 200 additional jobs had been sent offshore by 2006.
As part of the culture change program, a new Australian head office was purpose built at Docklands in Melbourne. This building is characterised by its open plan layout and was officially opened in October 2004. After Cameron Clyne became CEO in 2009, the Docklands building became the global headquarters replacing 500 Bourke Street.
By 2006, NAB had turned its fortunes around, reporting an industry record $4.3 billion profit and winning two local Bank of the Year awards. It also had a major reform which included the refurbishment of all of its branches, and the replacement of signage in and around National branches and buildings, being changed from 'National' to 'nab'.
In May 2007 NAB announced that it would delist from the New York Stock Exchange, and this took place in August 2007. NAB delisted from the London and Tokyo exchanges in 2006.
In March 2008 NAB announced that it would send maintenance and support for some core banking applications to India through an offshoring arrangement with Infosys and Satyam, affecting another 260 employees.
On 25 July 2008, NAB's announcement of an additional A$830 million provision associated with deterioration in US real estate markets triggered the biggest single-day fall in its share price in 21 years, wiping over A$7 billion from the stock's value.
Customer Relationship Management changes
NAB is a large user of the Siebel and Teradata CRM systems.
Whilst NAB has received recognition as an early adopter and leader in CRM (Customer Relationship Management) the system was reinvigorated in 2004/5 as part of the broader turnaround to support the new focus on cross-selling.
NAB also deployed its CRM system to New Zealand and United Kingdom.
In 2006, NAB was named the winner of the IFS/Cap Gemini Financial Innovation awards for its CRM system, internally called "National Leads".
Present era
Launch of UBank
In October 2008, NAB launched a branchless direct bank trading separately as "UBank" under the leadership of Greg Sutherland and Gerd Schenkel.
NAB stated it aimed to attract new retail customers while operating independently to its other retail brands, and in its 2009 annual report, NAB claimed that this strategy had been "successful". UBank operates under NAB's banking licence and participates in the Australian government's new deposit guarantee scheme.
Deposits were said to exceed over $500 million in one month.
UBank was cited as an example of effective use of nontraditional marketing such as social media, but also uses traditional marketing such as print and television.
NAB claimed UBank's "customer advocacy and satisfaction levels" to be "amongst the highest of any institution in Australia"
In its 2009 annual report, NAB claimed "almost 10,000 new customers in a month" for UBank's USaver product.
UBank has been acknowledged as the driver of NAB's fast growth in deposit market share compared to other major banks.
NAB's UBank has been compared to Qantas' Jetstar in terms of a strategy of internal innovation with the objective of opening new market segments for the parent company.
UBank deposits
In August 2009, UBank launched a new online savings account ("USaver") that was reported to differentiate through its easy online application process.
In December 2009, UBank's USaver online savings account was awarded Money Magazine's "Best of the Best" award.
In February 2010, NAB stated that strong growth in UBank had positively impacted its household deposits.
At an Investor Briefing in February 2011, Executive Director & Group CFO, Mark Joiner, reported "UBank's now well over $7 billion" when asked the source of the groups growth in deposits.
In March 2011, Cameron Clyne, claimed in an interview that UBank had reached $10 billion in deposits and would become a full service retail bank.
In October 2012, in a media interview about NAB's results briefing, CEO Cameron Clyne claimed that UBank had "raised $15-16 billion in deposits". This compares to $18.5 billion in deposits held by ING Direct as of September 2012. ING Direct is the incumbent leader of the direct banking segment in Australia and launched in 1999, 9 years earlier than UBank.
UBank mortgage
In February 2011, UBank launched its first home loan product (dubbed "UHomeloan"). Only 10 days after its launch, UBank dropped the interest rate of its loan by 0.10%pa
In October 2011 UBank won the BAI Financial Global Product Innovation Award for its refinance mortgage UHomeloan.
In the 2012 Australian Lending Awards UBank was named Best Online Operator
New strategy 2009-2014
Since his appointment in January 2009, CEO Cameron Clyne has undertaken a strategy of reputation change, wealth management and a focus on Australia.
As part of this strategy, NAB's underweight retail bank has - under the leadership of Lisa Gray - attempted to increase market share by competing on price and cutting fees. Initially denting earnings in the division, the strategy has produced mixed results over the medium term, with cash earnings, market share and customer satisfaction rising, but operating margin and cost to income ratio worsening since it began in 2009.
In August 2014, Lisa Gray left NAB as part of a broader set of executive changes.
In line with the strategy, NAB attempted to differentiate itself from the other "Big 4" Australian banks in a large, national public relations campaign centred around a theme of "breaking up" with the other banks on Valentine's Day 2011. The campaign received both a positive and negative reception. It also attracted swift competitive responses from other major banks. The campaign won an advertising award at Cannes.
In 2009, NAB acquired the mortgage business of Challenger Financial Services for $385 million, in order to boost its market share in the broker channel. The purchase also included the PLAN, Choice, and FAST mortgage aggregation businesses and approximately 17.5% in Homeloans Ltd.
NAB's poor 2012 financial results, however, called its strategy into question: net profit dropped by 22% compared to the prior year
Acquisition strategy
The bank capitalised on the post GFC environment to attempt a number of acquisitions for its wealth management division.
In June it paid A$825m ($660m:£401m) for UK insurer Aviva's Australian wealth management businesses, including their Navigator platform. NAB beat off competition from AMP for Navigator. In July 2009 NAB acquired an 80% stake in the private wealth management division of Goldman Sachs JBWere, for A$99m.
In December 2009 NAB began a 9-month attempt to purchase AXA Asia Pacific. This attempt was blocked twice by the ACCC. The first time, in April 2010, was because the regulator believed that the merger would cause a substantial lessening of competition in the retail investment platform market. NAB subsequently lodged a revised bid which aimed to address these concerns however was rejected a second time in September of that year. The AXA deal's drawn out process drew criticism for the Bank's under performance.
Technology upgrades
Clyne has accelerated the bank's core banking platform upgrade, dubbed "NextGen", which is replacing legacy systems which are up to 40 years old with an Oracle-based solution. UBank was reported to be the first beneficiary of this project. In total, the project is expected to be completed in 2014 and cost $1 billion.
In March 2013, Lisa Gray took over leadership of the "NextGen" program.
As of April 2014, NAB's "NextGen" program was said to suffer from "growing problems".
On 25 November 2010, NAB suffered a system malfunction resulting in the failure of accounts processing. As a result, around 60,000 banking transactions were lost, and had to be manually recovered. The malfunction was caused by a corruption of an irreplaceable system file. This issue has been dubbed by some commentators as one of the biggest failures in the history of the Australian banking system.
New CEO 2014
In 2014, NAB announced the replacement of Cameron Clyne as CEO with Andrew Thorburn, NAB's New Zealand head.
Corporate affairs
Corporate responsibility
In 2008, NAB invested $33.5 million in corporate responsibility initiatives. Its target is to spend 1% of cash earnings before tax in this area. In 2009, NAB become the largest Fairtrade accredited workplace in Australia through purchasing Fairtrade tea, coffee and hot chocolate for their offices and retail branches. In March 2010 NAB stated it expected to save nearly $1 million in annual power costs from a $6.5 million tri-generation plant at its main data centre. NAB became one of Australia's largest carbon neutral companies in September 2010. NAB ranked equal first among financial service companies in the Global 500 companies in the 2010 Carbon Disclosure Leadership Index.
Sponsorship and scholarships
During this period, NAB emerged as a major sponsor of Australian rules football, both at grassroots and elite level. It supports Auskick, an initiative to improve young footballers, as well as the NAB Cup (an Australian Football League pre-season competition), the NAB AFL Rising Star award; and the AFL National Draft. Other significant sporting sponsorships included the Socceroos, and the 2006 Commonwealth Games. Support is also given towards community group volunteers around Australia. In recent years, NAB has provided financial support and relief to drought affected farmers and helped in the clean-up of flood affected in Queensland and Victoria. From 2008-2010 NAB is sponsoring the South Sydney Rabbitohs.
NAB has also sponsored the Sheikh Fehmi El-Imam Scholarship, designed to help strengthen the links between NAB and the Muslim community and enables an undergraduate student to continue post-graduate studies in finance and economics.
Controversies
Foreign currency trader staff fraud
In 2004, NAB discovered that as a result of unauthorised spot trades on its foreign currency options desk, losses totalling A$360 million had been covered up. Investigations by Price Waterhouse Coopers and the Australian Prudential Regulation Authority highlighted a need for cultural change. The losses were a result of a failed speculative position where the traders falsified profits to trigger bonuses over a number of years. In order to actually generate the reported profits, the traders speculated on the US dollar, betting that it would rise against the Australian dollar and other currencies. In 2006, two former NAB foreign currency options traders were sentenced on charges brought by the Australian Securities and Investments Commission (ASIC) and incurred jail terms.
NAB Financial Planner Fleeces Retirees of AU$7m
Acting on a customer complaint an investigation found that between 1997 and 2001 a NAB financial products seller working out of a northern Sydney branch made recommendations to a number of NAB clients, mostly retirees, to invest in BSI Corp, an entity based in the Bahamas which was not a NAB approved investment product. According to ASIC, at least $6.2m was subsequently transferred from the overseas accounts in the Bahamas and the Dominican Republic back to a private company account, held for Strategic Investments Group and controlled by a single director. Funds were then applied from this account to a number of failed business opportunities including a golf driving range on the Central Coast of NSW, a plumbing business, and futures and commodities trading. The NAB employee was not officially connected with BSI but gave instructions to agents based in Canada to arrange for the transfer of funds back to Strategic Investments Group and other accounts. On 29 May 2006 the NAB employee pleaded guilty to 8 counts of dishonestly obtaining a financial advantage by deception, 2 counts of fraudulent misappropriation and 3 counts of making and using false documents. There is also a connection to the collapse of the Allco HIT Ltd and Strategic Finances where it is suspected that the swampland was used to underpin financial dealings. During the time of the investigations the NAB provided the perpetrator of the fraud with a loan of $350,000 secured by swampland on the Central Coast of NSW.
Tax evasion and customer overcharging in Ireland
The Irish subsidiary of the bank, National Irish Bank was the subject of a six-year Inquiry carried out by Inspectors appointed by the Irish High Court. They established that National Irish Bank had engaged in overcharging its own customers and tax evasion schemes prior to 1998. Mr Justice Peter Kelly, an Irish High Court judge commented following publication of the Report "The edifice of banking is built on a foundation of trust. On the Inspectors findings there was a breach of trust. The operation was carried out over a period of years in a deliberate fashion". The Director of Corporate Enforcement subsequently applied to the High Court to have 9 senior managers barred from being an officer of any company.
HomeSide write-downs
NAB booked two write-downs associated with HomeSide. First, in July 2001, NAB had a $450 million write down of the value of its capitalised mortgage servicing rights (CMSRs) during the quarter ending 30 June 2001, and was the result of exceptionally high mortgage refinance volumes which lowered the value of the CMSRs, combined with a more challenging capital markets environment in which to hedge interest rate risk. This was followed shortly by a second write-down reported in September totalling $1.75 billion; this second write-down consisted of US$400 million from an incorrect interest rate assumption embedded in the mortgage servicing rights valuation model, US$760 million from changed assumptions in the model flowing from the continued unprecedented uncertainty and turbulence in the mortgage servicing market, and US$590 million from writing off of the goodwill. In total, NAB booked $2.2 billion in losses due to HomeSide.
As a result of all these events, NAB's Australian shareholders attempted to sue it in the United States for securities fraud, even though the plaintiffs, the defendant, and the actual securities at issue (NAB's shares) were all located in Australia. (The main advantage of suing in the U.S. arises from Basic Inc. v. Levinson (1988), under which it is presumed that the defendant committed "fraud-on-the-market" unless the defendant proves otherwise.) The case of Morrison v. National Australia Bank Ltd ultimately ended up before the U.S. Supreme Court, which held in a unanimous 8-0 decision on 24 June 2010 that U.S. law against securities fraud does not apply to securities deals occurring outside of the country.
References
External links
- NAB Group - Official NAB Corporate Site
- National Australia Bank - Australia Region
- MLC Investments Official MLC website
- UBank Official UBank website
- Fortune Global 500 listing
- National Australia Bank stock chart
- CBC Officers Club
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