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National Australia Bank - Failed Strategists?

Have they been unlucky or badly run?

22Mar

When National Australia Bank (NAB) headed over to Europe in 1987 and in one fell swoop acquired Clydesdale Bank in Scotland, the Northern Bank in Northern Ireland, and the National Irish Bank in the Republic of Ireland - all from Midland Bank - many believed that it could eventually rival the UK’s long-established major high street banks, and become a true global player.

Over the next decade, it appeared that this promise was to be fulfilled. NAB went on to buy Yorkshire Bank in 1990, Bank of New Zealand (BNZ) in 1992, and US based Michigan National Corporation (MNC) in 1995. Under the stewardship of then CEO Don Argus, its strategy of growing ‘organically and through well considered acquisitions’ seemed to be working, and in its 1997 annual report, it announced its vision was to be ‘the world’s leading financial services company’.

It wasn’t to last. In 1999, Argus left to become chairman of mining company BHP Billiton, and things began to fall apart somewhat. First, it disposed of its US operations in 2000, selling MNC to Dutch bank ABN-AMRO, albeit for a profit of some US$1 billion. Then, in 2002, NAB sold its Homeside operations for a loss of over US$2 billion. Last month, NAB also finally managed to rid itself of its UK operations, completing a £1.6billion float of Clydesdale Bank on the LSE.

It would be easy to suggest that this failure was the result of hubris. The bank flew too close to the sun, overextending itself with banks that were minor players in their markets and would only ever show limited growth. It could also be argued that it did not fully understand the markets they were moving into - particularly when it came to US mortgages. Equally, NAB’s acquisition strategy was made to look far worse because of how the global financial crisis of 2008 played out. The Australian economy and banking sector largely sidestepped the worst of the financial crisis, while the failing UK economy and poor judgement shown by many bankers combined to derail performance at both Clydesdale and Yorkshire banks, and dragged under NAB’s otherwise still profitable operations.

Clydesdale has found itself caught up in the UK payment protection insurance (PPI) mis-selling scandal that hit the industry over the last few years, in which it was found that insurance had been wrongly sold alongside loans, credit cards and mortgages, and banks were forced to compensate any customers who were mis sold the cover. In April of 2015, Clydesdale was issued a $31.96 million fine from Britain's financial watchdog for its handling of PPI claims, who said the bank failed to handle claims properly. NAB has been told to set aside $2.59 billion to cover potential claims and fines.

Obviously, its easy to say in hindsight that NAB’s entire strategy of overseas acquisitions was poor, and it could be that the complexities and turbulence of the global financial sector mean that it does not lend itself well to overseas acquisitions as a strategy. On the other hand, it could also be argued that NAB’s acquisition strategy was actually just not ambitious enough, and the bank should have been more aggressive. It was, for a time, the frontrunner to buy 632 Lloyds Banking Group branches in 2011 before dropping out because of the £3 billion price tag, which it could easily have got for far less in the end, with Co-Op offering significantly less in their doomed bid.

With the exception of US privately held corporation Great Western Bancorp (GWB) - which it bought for just over AU$1 billion in 2007 - the bank had basically abandoned its acquisitions strategy by 2005, and maybe it would have been been better off plowing forward. While the companies they did acquire were minor players, they had a lot of room for growth, and Clydesdale could still prove successful if properly managed. Maybe NAB’s acquisition strategy was not the wrong one in principle, but poor management and an inability to see it through has left it looking like it was.

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