NAB gambles on its IFS model

NAB's corporate clients must be scratching their heads after yesterday's strategy briefing from new chief executive Cameron Clyne.

The corporate lending business will move out of the institutional division, nabCapital, and into the regional business banking divisions.

NabCapital will continue to offer treasury, markets, specialised finance and custody services to large clients.

Both businesses operate on a relationship banking model. Who will have primary responsibility for the relationship was not made clear. Maybe corporate clients will have two relationship managers.

The dismantling of nabCapital and the merging of MLC with the private wealth business are the most important outcomes of the strategy review Clyne has been conducting since January.

But the biggest risk he is taking is betting that business customers of all sizes can be serviced by the same division.

Clyne is pinning a lot of his hopes on the business banking division. The bank has reported previously that lending to business customers has been growing at 1.3 times system over the past few months.

NAB is in the process of hiring between 150 and 200 new business bankers and is looking for sites to open as many as a dozen new business banking centres this year.

The bank's group executive business banking, Joseph Healey, told The Sheet in an interview last week: "There are two dynamics at play in the industry now. There is consolidation, with Westpac and St George, and Commonwealth and BankWest.

"There is also the fact that some of the smaller banks and non-banks that have been competing with us are significantly weaker today than they were a year ago.

"The capacity to grow today is as good as it has been for a long time."

Clyne said yesterday the retreat of non-bank financial institutions, regional banks and foreign banks meant that around 30 per cent of the business banking market was "open for growth".

According to an internal rating of the bank's business units published yesterday, business banking is rated "strong position with growth opportunity" along with institutional wealth, insurance and markets.

Australian retail, investment and superannuation, asset management and private wealth are rated "significant upside from continuing reinvention".

The New Zealand operation (Bank of New Zealand), the US agri bank and Asian operations are rated "smaller businesses, resilient in tough conditions".

The UK banks and some "non-franchise" nabCapital activities (such as CDO origination) are rated "unsatisfactory returns today in tough conditions".

Despite the UK's poor rating Clyne said he was not planning to sell it. He said the UK banks were profitable and were outperforming their peers.

He said: "We don't like the market but it is a good bank. We are going to run that business to maximise optionality."

Clyne said he was confident the bank could use its integrated financial services model, pioneered in the UK, to overcome any problems in integrating various parts of the business.

About IFS, Healey said: "If you go to one of our business banking centres you will find a traditional business banker plus a private banker plus a transaction banker and a risk banker.

"In other words, within the local operation these capabilities are integrated, and that means that when our banker is sitting down thinking about a particular client, expertise from across the bank is in the room.

"We started rolling out IFS in Australia about 12 months ago, having had it successfully operating in Clydesdale Bank and Yorkshire Bank for a couple of years. It is fully implemented in Australia."

In theory IFS will overcome any turf wars between business banking and nabCapital about who owns the corporate clients.

Management also expects IFS to break down the barrier between commercial customers and the bank's wealth management offerings.

Healey said: "With business owners, particularly private business owners, you have got significant personal wealth tied up in the business.

"While the business operators are managing the business they also have a need to think about their futures. We are doing that but we could do it better."

Clyne sad the merging of MLC, NAB private wealth and nabInvest (a boutique funds management incubator) was designed to provide a "total wealth proposition."

"We have high net worth individuals who have banking business with us but not much super or investment. We want to offer them a more complete service."