NAB's CEO cuts dividend, restructures

National Australia Bank Ltd (NAB) will cut its dividend for the first time in 18
years and restructure its institutional business to secure the bank against the
economic downturn, but does not anticipate mass jobs cuts.
New NAB chief executive Cameron Clyne on Thursday flagged a stronger focus on the
group's businesses in Australia, where the economy is faring better than others.
In setting out his strategic agenda as bank head, Mr Clyne also reaffirmed the
bank's commitment to its UK operations, which are facing some of the toughest
conditions seen in that country in decades.
NAB became the second major bank to signal a dividend cut, after Mr Clyne said the
first half dividend would be slashed by 25 per cent due to the challenging market
environment.
Rival ANZ Banking Group Ltd last month said it would cut its full year dividend by
25 per cent to conserve free cash.
The dividend decision means Mr Clyne become NAB's first chief executive to reduce
its dividend since 1991.
NAB will also intensify its focus on its Australian franchise by growing its
flagship business bank, leveraging recent investments in its retail bank and
pursuing cost synergies in wealth management by merging its private bank and private
wealth units.
The bank could boost revenue by a whopping $1 billion by ratcheting up its
cross-selling activities, while the retail arm could benefit from better targeting
of high net worth customers.
But first NAB will restructure the struggling institutional business, nabCapital, by
merging the corporate lending business into the bank business of each of its
regional operations and offloading non-core activities such as conduit assets.
The treasury services and specialised finance businesses will be managed as a
separate unit to be called Wholesale Banking, led by new head Rick Sawers.
The restructure was likely to inject 50 basis points into the bank's tier one
capital ratio after the non-franchise businesses were sold down, Mr Sawers said.
Mr Clyne ruled out mass group job cuts, although some losses may arise from reduced
duplication.
"None of our businesses are working to job reduction targets," he said.
NAB cut some jobs at its MLC wealth management unit in early 2008/09, but is not
anticipating "significant reductions" as a result of the institution arm
restructure.
It said it expects to add 150 to 200 business banking jobs in 2009.
However, there were hints of headcount reductions as part of the bank's move to a
flatter management structure.
NAB spokesman George Wright told AAP that any widespread cut in layers of management
roles initiated by the new management team would be disclosed to the market.
Analysts said Mr Clyne's strategy was viewed as benign and low risk, and investors
reacted by pushing the stock 43 cents, or 2.64 per cent, higher to $16.73.
"It's very much a safe, low-risk strategy at this structure," Credit Suisse analysts
James Ellis said, noting the changes were "only incremental".
NAB said it would hold on to its UK units, Yorkshire and Clydesdale banks, despite
their low contribution to cash earnings.
"It is absolutely not in the interest of shareholders to exit our UK position," Mr
Clyne said.
However, analysts said it would be hard to find a buyer in the current market
conditions.
NAB is also eyeing potential acquisitions thrown up by the global financial crisis
but has no specific deals in the pipeline.
"Market disruptions are producing unique opportunities," Mr Clyne said.
NAB also said it expected business banking system growth to decline by four to five
per cent in 2009, from around seven per cent currently.
"My own view is that system growth will decline by four to five per cent," business
banking head Joseph Healey said.
Mr Clyne said there had been no material change in NAB's provision for bad and
doubtful debts and portfolio of collateralised debt obligations (CDOs) since it last
updated the market.
On February 6, NAB said it had made a provision of $830 million to cover rising bad
and doubtful debts for the December quarter 2008.