Tag: NAB

NAB Up’s Customer Remediation Costs

NAB says that an additional charge of $525 million after tax ($749 million before tax) relating to its customer remediation programme. As a result 1H19 cash earnings will drop by around $325 million and earning from discontinued operations by $200 million.

They say they have made around 360,000 payments to customers with a total valuer of $145 million, and the remediation team is building from 350 to around 500 across NAB.

Of the 1H19 charges, 90% relate to wealth, the remainder banking. IN combination with provisions raised in 2H18, total provisions for customer related remediation to 31 Match 2019 is $1,102 million.

The items responsible for this include:

  • Consumer credit insurance
  • Non-compliant advice to wealth customers
  • Adviser service fees by NAB advice partnerships (does not include allowance for customer refunds)
  • Adviser service fees charged by NAB Financial Planning
  • Banking related matters such as incorrect fee take on fee expect transactions.

These costs are to be held below the line as it were, but clearly investors and potentially customers will have to pay for this litany of poor practice.

It begs the question, can the NAB behaviourial norms be turned around? And at what cost?

NAB predicts 2019 rate cuts

A big four bank has confirmed it is preparing for two rate cuts before the end of 2019, via Australian Broker.

Speaking at the NAB Budget Breakfast yesterday, NAB chief economist for markets, Ivan Colhoun, noted that the RBA has likely been stumped by the combination of the decreasing unemployment rate and slackening of GDP growth.

“The lower unemployment would say do nothing, but the slower GDP growth would say cut rates,” Colhoun explained.

That said, he pointed out the significant change in the final paragraph of the reserve bank’s announcement earlier this week which said the RBA is now “monitoring” monetary policies, a notable shift from the last several years.

According to Calhoun, “[NAB] thinks they will cut interest rates twice in the second half of this year.”

Jonathan Pain, independent economist and author with decades of international finance experience, also weighed in on the matter.

“I agree with NAB that the RBA is going to cut rates. I think they’re going to be very aggressive this time around,” he said.

“If we didn’t have this election in May, I think the RBA would already have been cutting rates. The final sentence of the reserve bank statement opened the door for a rate cut at their next meeting, in my view.”

However, there was a key difference in the predictions of the two financial leaders.

Pain said, “NAB is going for two rate cuts, from 1.5% to 1%. I’m going for four rate cuts by the end of this cycle.” The economist sees the rate settling at 0.5% in two years’ time.

The divergence stems from the two leaders’ views on what banks would do with a cut in rates.

After clarifying that he’s not personally involved in making the decision, Colhoun stated that he “expects rate cuts to be passed on” to NAB customers as long as “funding pressures stay lower.”

Pain disagreed stating, “Banks always want to protect their margins.”

“One of the reasons I’m going for a 1% cut in rates in the next two years is because I don’t think the banks will fully pass it on. I think they’ll pass on about 60-65%.

“Does it matter? Absolutely. The majority of mortgages in Australia are of a variable rate nature, so the cash rate that the reserve bank sets is very important for us from a business perspective and from a mortgage prospective,” he concluded.

NAB ends ‘Introducer’ payments program

The National Australia Bank has announced an end to its ‘Introducer’ payments program to take effect in October 2019, via InvestorDaily.

The Introducer program was launched by NAB to reward businesses with a commission for new successful lending referrals to NAB. 

The program was promoted by NAB as a way to fundraise for communities and as a relationship strengthen program. 

The program has been the source of many problems for the bank with KPMG being commissioned to investigate the program in 2015 and found large issues including bankers falsifying documents to issue bogus loans and serviceability issues. 

KPMG went as far as investigating introducers for links to organised crime and terrorist financing and NAB continued to investigate the problem and in 2016 notified the police and ASIC resulting in the sacking of 20 staff and more disciplined.

By October 2019 NAB will no longer make referral payments to Introducers with chief executive Philip Chronican saying it was important that the bank acted and changed its actions. 

“Through the royal commission, we heard clearly that our actions need to meet the expectations of our customers and the community. We need to be simpler and more transparent to earn trust. We have to put customers first, to be a better bank,” Mr Chronican said.

Commissioner Kenneth Hayne in his final report did not recommend the banning of such schemes but after hearing about fraud issues around such programs did raise the question about who the introducers were actually working for. 

The program was reportedly responsible for approximately $24 billion in loans and in 2018 the bank said it was responsible for one in every twenty home loans it wrote. 

Mr Chronican said he wanted Australians to come to NAB because of what the bank offered, not because someone was paid to do so. 

“We want customers to have the confidence to come to NAB because of the products and services we provide – not because a third-party received a payment to recommend us.”

The change is significant for NAB and the industry, but Mr Chronican said it was the right thing to do for the banks customers. 

“Like other businesses, we will still welcome referrals and will continue to build strong relationships with business and community partners. However, there will be no ‘Introducer’ payments made,” he said.

NAB is the first of the big banks to remove their introducer program with a report from ASIC revealing that in 2015 $14.6 billion in home loans by the big four were sold via introducer channels.

The announcement is the latest by the bank who recently announced that it would keep all regional and rural branches open until at least 2021. 

The bank has also extended the protections of the code of banking practice to small businesses and has supported 72 of the royal commission recommendations with 26 either completed or in the process of being implemented. 

“NAB has a significant role to play in leading the change our customers and the community want to see.”

NAB Confirms CEO Exit

In an ASX announcement, National Australia Bank Limited confirmed arrangements for outgoing Group CEO Andrew Thorburn and interim Group CEO Philip Chronican.

Mr Thorburn has resigned and will finish at NAB on 28 February 2019. In accordance with his contractual entitlements, Mr Thorburn will receive payment of $1,041,449 in lieu of 26 weeks’ notice, along with accrued leave entitlements. All Mr Thorburn’s unvested deferred awards will be forfeited in accordance with plan rules.Interim arrangements for Group CEO.

Mr Chronican, a current Non-Executive Director, will commence in the role of Group CEO (subject to regulatory approvals) on 1 March 2019, serving until the appointment and commencement of a new Group CEO. For the period Mr Chronican serves as Group CEO, he will receive a fixed monthly fee of $150,000including superannuation, representing an annualised remuneration of $1.8 million. Mr Chronican will not be eligible for any variable remuneration, nor will he receive Non-Executive Director fees while in the Group CEO position.

It has also established special committees for the selection of a new Chairman and Group CEO.

NAB CEO and Chairman to go

To lose one is unfortunate, to lose two… well… Tough times for certain senior bankers!

In an ASX statement NAB said that CEO Andrew Thorburn will finish at NAB on 28 February, while Dr Ken Henry indicated that he would retire from the board once a new permanent chief executive had been appointed.

The NAB board said it will initiate a global search process for the chief executive role while actively considering a range of internal candidates.

In addition, it has asked director Philip Chronican to serve as acting chief executive effective 1 March until an appointment is made.

Mr Thorburn said it has been an honour to be the chief executive of NAB, and to have been part of NAB since 2005.

“I acknowledge that the bank has sustained damage as a result of its past practices and comments in the royal commission’s final report about them,” Mr Thorburn said.

“I have always sought to act in the best interests of the bank and customers and I know that I have always acted with integrity.

“However, I recognise there is a desire for change. As a result, I spoke with the board and offered to step down as CEO, and they have accepted my offer.”

Dr Henry said the board had recognised that change was necessary.

“The timing of my departure will minimise disruption for customers, employees and shareholders,” he said.

“This is naturally a difficult decision but I believe the board should have the opportunity to appoint a new chair for the next period as NAB seeks to reset its culture and ensure all decisions are made on behalf of customers.”

Mr Chronican said he was privileged to have been asked to step in as acting chief executive while the board selected a new chief executive.

“I recognise the important responsibility in stepping into this role at a difficult time for NAB,” he said.

“I am confident in our existing strategy to transform the bank to be better for customers and will work with everyone at NAB to earn the trust and respect of the community.”

NAB Lifts Mortgage Rates

NAB today lifted its back book mortgage rates by up to 16 basis points, which marks the end of its initiative to hold rates lower.

As we have been saying for some time margin pressure is building, as illustrated by the BBSW

… and LIBOR rates

We expect more rises across the lending community, which will put more pressure on mortgage stress, which today stands at above one million households according to our surveys.

NABs chief customer officer Mike Baird said that the bank could no longer afford to absorb higher funding costs.

NAB lifted rates on existing principal and interest loans for owner occupiers by 12 bps to 5.36 per cent and interest-only loans for owner occupiers by 16 bps to 5.93 per cent.

The bank raised rates for principal and interest loans for investors by 16 bps to 5.96 per cent and for interest-only investors by 16 bps to 6.41 per cent.

NAB said its decision to keep variable rates on hold had saved 930,000 households around $70 million. The bank said it had raised rates for principal and interest loans by a smaller amount in order to encourage home owners to pay down their home loans sooner. Nice, but meaningless touch!

Shareholders put NAB board in the hot seat

From Financial Standard.

NAB executives were slammed for destroying shareholder value and for losing its lead as Australia’s biggest bank by market capitalisation at its annual general meeting in Melbourne this morning.

One shareholder during the question and answer session didn’t hold back his disappointment with the bank’s failure to prevent issues that resulted in billions of dollars wiped out in market capitalisation.

In the lead up to the financial services Royal Commission, the shareholder said there was something “amiss” in the way the board ran the bank, as reflected in failed ventures in the UK and the share trading scandal among other examples.

The shareholder, who has been a NAB customer for about 50 years, went on to describe the leaders as the “unacceptable face of capitalism.”

One reason why he stayed with NAB for so long is because of the frontline staff or bank tellers who have taken care of him as a customer for decades. Ironically, these are the employees senior management are “laying off” as a result of the mess the business is in, he said.

Another shareholder suggested senior managers should do more to reach out and connect with aggrieved customers rather than rely on net promoter scores figures.

NAB chair Ken Henry was then criticised for saying it will take 10 years for NAB to change the bank’s culture at the Royal Commission.

This should only take 10 months, the shareholder said, adding if it takes 10 years then there is “something is wrong with the board and senior management.”

In response to counsel assisting Rowena Orr’s question about what NAB is doing to embed new culture, Henry listed initiatives that include closely monitoring non-compliance and net promoter score across 700 branches.

“It could be 10 years. It could be. I hope not. But I wouldn’t be at all surprised. That would not be unusual for organisations that seek to embed challenge in cultures,” he said at the time.

In his opening address, Henry flagged that the board estimates more than 80% of the votes cast will be ‘against’ the remuneration report.

Chief executive Andrew Thorburn said in his opening statement that NAB has completed its refunds of plan service fees, and the issue affecting more than 304,000 customers has been closed.

“We have also agreed on a remediation methodology with ASIC that will see NAB Financial Planning refund adviser service fees to those customers who didn’t get the services they paid for. That is starting this week, and is to be completed in 2019,” Thorburn said.

Thorburn will take annual leave from December 21, and will return to respond to the Royal Commission’s final report to be released on 1 February 2019. He will then take a month-long break as part of his long-service leave entitlement.

NAB shares traded at $23.32 per share at publication time. This time last year, it traded at about $30.


Ken Henry calls time on capitalism

The NAB chairman has suggested that it is time for the traditional capitalist model to be flipped on its head; via Investor Daily.

 Dr Ken Henry, chairperson at National Australia Bank, suggested during round seven of the royal commission that maybe it was time for the banks to rethink its capitalist model.

“The capitalist model is that businesses have no responsibility other than to maximise profits for shareholders. A lot of people over the past 12 months have said that’s all that you should hold boards accountable for.”

Dr Henry said that some people would argue customers were part of pleasing shareholders as treating customers well was important to the long-term interests of shareholders.

“But that approach sees customers as instruments in an instrumental fashion, that the customers are seen as the means by which shareholder profits are secured, rather than the customer being the focus,” he said.

Dr Henry said a debate was now being had over what businesses should be accountable for and the possibility of an alternative solution.

“Within NAB we have thought very deeply about whether we should see our customers in purely instrumental terms, as a means to the end rather than the end to itself.”

Dr Henry noted that views within the bank differ, but added that NAB had realigned its incentives to focus on its customers.

“For what it’s worth, NAB’s view clearly today is that incentives should be aligned with customer experience, customer outcomes to be clear,” he said.

However, as Dr Henry demonstrated on the stand, this has not always been the case for NAB, as counsel-assisting Rowena Orr showed that APRA held the view that NAB’s remuneration was not appropriate.

“APRAs view was that NAB’s remuneration arrangements weren’t operating as they should to support the prudent management of risk at NAB?” said Ms Orr

“That was their view, yes,” said Dr Henry.

As Ms Orr pointed out, APRA’s review of NAB claimed that the bank had a heavy emphasis on profitability measures in individual performance assessments and unlike its peers had no risk-adjusted measures of profitability.

“Well, it was no surprise. Concerning. Absolutely concerning, but not a surprise,” said Dr Henry.

Evidence of the remuneration model was presented by Ms Orr when she questioned Dr Henry why NAB in 2016 gave its executives their full short-term variable remuneration.

Ms Orr pointed out that in 2016, NAB’s bonus pool was set at 100 per cent and that CEO Andrew Thorburn did not even mention the matters when stating the decision.

“So, he (Mr Thorburn) didn’t mention any of those matters, adviser service fees, plan service fees, the bank bills swap rate, the foreign exchange breaches,” said Ms Orr.

Dr Henry said that there was enough information about the issues to have impacted the decision, but it did not concern him that it wasn’t raised.

“You said earlier Dr Henry, that you weren’t sure what the board could have done differently or when it could have. I want to suggest to you squarely that this was a point at which the board could have conducted itself differently. It could have sent a strong message by reducing the pool in response to these very significant compliance issues,” Ms Orr said.

“Of course, we could have, and we decided not to. For very good reasons and I’m still happy with those reasons,” said Dr Henry