Ranking The Bank Managers

The sentiment that "all banks are the same" is behind the inertia that sustains the Australian banking oligopoly. A similar attitude might as well inform investment choices among the four big banks, because, over many years, no one bank '” ANZ, Commonwealth, National or Westpac '” has reliably outperformed or underperformed the bank index.

But are they all the same? And what if times get tough in the banking business '” who are the tough who'll get going?

Let's start with the worst of the big four and work up.

National Australia Bank (NAB)

NAB's management team engenders the least confidence of any of the big four, and this is largely a function of the extensive management changes forced on it by embarrassing risk-management blunders. The US-based Homeside mortgage business cost the bank billions in 2001 (with few management consequences) and the foreign exchange scandals of 2004 cost hundreds of millions of dollars (with massive management consequences).

The risk-management scandals were the genesis for a reconsideration of once settled strategies for regional markets in Australia, New Zealand and Britain, and a handful of markets in South-east Asia.

As the foreign exchange options scandal ballooned into serious crisis in early 2004, the bank lost, in sequence, its chair, chief executive, chief financial officer and half the board.

In early 2004, a reactive board brought John Stewart, a Scot, from Britain as the new managing director. Stewart, formerly managing director of Woolwich Building Society and deputy managing director of Barclays, had been recruited, in mid-2003, to revitalise NAB' s British retail banking franchise.

Stewart decided to manage NAB on a "regional" basis. In practice, this meant that, an "Australian CEO" would be responsible for the entire retail, wealth management, business banking and institutional business in Australia. A similar model would apply in the much smaller BNZ business and in Britain.

Stewart hired former Citibank executive Ahmed Fahour as the new Australian CEO in late 2004. Fahour' s banking experience is limited. At Citibank, his main claim was time spent running the alternative investments portfolio in New York. Fahour wanted to move to Australia, so Citibank created a job for him here, but he soon found another job, at NAB.

To run NAB's business in Britain '” the Clydesdale and Yorkshire bank brands '” Stewart recruited a former Woolwich and Barclays' colleague, Lynne Peacock, who, in turn, recruited another dozen managers, most with Woolwich and Barclays connections.

NAB's wholesale operation, which was most shaken by the options scandal, is under the control of John Hooper, a relatively recent recruit from Britain. Many long-time NAB staffers in this segment of the bank have left, either voluntarily before the scandals broke, or forced out because of them.

From a wider management point of view, Stewart's effort to achieve cultural change at NAB, and to thus help revive sales and profits, is very much a work in progress.

Following dozens of new appointments to key positions, internal and external critics see four camps within management, one comprising the Barclays and Woolwich people close to Stewart and Peacock. The rumour mill suggests this pair, and some subordinate executives also recruited from Barclays, will retire sooner rather than later.

A clutch of former Commonwealth Bank executives (mostly now working in the business bank and risk management) followed Michael Ullmer (formerly CFO at Commonwealth) to NAB (where he is also CFO). In this camp, among others, are George Frazis, head of business banking, and Bruce Munro, who manages working capital services. This group, and some subordinates also recruited from CBA, are very much in the ascendancy at NAB.

Commonwealth Bank (CBA)

It is tempting to hold the management team of Commonwealth Bank in high regard. Unfortunately, the bank's board doesn't agree. In a perplexing, and barely explained decision in June, the bank' s management passed over several well qualified internal candidates for the job of chief executive and opted for Ralph Norris, who used to work for CBA in New Zealand and until recently managed Air New Zealand. Norris is to replace
David Murray on September 22.

This means that the board didn't regard any of Murray's team as worthy of the top job. Given the bank's improving profits and reasonably well managed reorganisation, known as Which New Bank, outsiders can only scratch their heads and wonder why.

Michael Katz, the pick of the internal candidates at Commonwealth Bank, may have the most accomplished CV of any big bank executive. Katz has overarching responsibility for Commonwealth's institutional banking. He has been responsible for an unheralded achievement of Australian business over the past decade: from next to nothing 10 years ago, Commonwealth Securities (CommSec) has become the leading emerging brand in equity and debt capital markets. CommSec commands a market share now at, or in excess of, 10 per cent, and is progressively becoming more central to the marketing plans of investment banks, with equity, debt and in-between instruments to sell.

Stuart Grimshaw, who was the second mostly likely internal candidate to replace Murray, is CBA's group executive wealth manager. Before that, he was the bank's chief financial officer for a year. CBA poached Grimshaw from NAB in early 2002.

Retail bank head Hugh Harley has risen through the ranks. He has overseen the revival in CBA' s market share in many key retail product lines over the past year or so, following a period of decline connected to the early stages of the Which New Bank" restructure. He has also been in the hot seat while the bank has made pricing changes that have grated with key stakeholders.

The rumour mill suggests Norris plans to bring outsiders into key management posts, so a period of management instability is in the offing.

Westpac (WBC)

The Westpac crew does not have the flaws evident at NAB and CBA, but nor do they merit the top ranking.

One long-standing compliment paid to David Morgan is that he is so bright '” and knows it '” that he is happy to hire other bright and capable people. An ego like that doesn't worry much about stars shining more brightly around it.

Unfortunately, Westpac has not held on to all of its best and brightest. Michael Hawker, who ran the retail bank, jumped ship to run Insurance Australia Group; and David Willis, who ran the institutional bank, quit to have family time before joining a competitor, HBOS (owner of BankWest), the Scottish bank with deep pockets and massive ambitions.

Some of the people Morgan hired to handle the work of this pair have found the going tough in a crowded market. Michael Pratt, who worked at NAB under Don Argus and Frank Cicutto, now runs Westpac's business and consumer bank. The business bank is going great guns, but the consumer bank is not.

The wholesale bank is run by long-time staffer Phil Coffey. His opportunity is to oversee the bank's management of the Hastings Funds Management business (now run by rising star Sean McElduff). Each, in turn, has to somehow make a specialist infrastructure financier and niche funds management business work alongside the pools of capital managed within the BT Funds Management brand (where Rob Coombe, a long time Bankers Trust executive, is now in charge). This is one of Westpac's unappreciated points of differentiation. Westpac is the closest of the big four to replicating the Macquarie Bank model. Coffey, McElduff and Coombe are the people who have to make it work.

ANZ Bank (ANZ)

ANZ Bank usually ranks last in discussions about market share among the big four. It is, after all, a distant fourth in consumer banking and a not-so-distant fourth in business banking. But, in contrast with the other three, the smallest of the big four has successfully repositioned itself.

This may be myth, but it's a great story. In 1996, John McFarlane, ANZ's new boss, outlined his strategic plan at an early board meeting. He announced he would increase the bank's proportion of consumer banking business from one to two-thirds. Board member Margaret Jackson is said to have responded that McFarlane was being remarkably optimistic. It took eight or nine years to accomplish, but, through the takeover of National Bank of New Zealand (NBNZ), retail banking now accounts for two-thirds of ANZ business. And, while ANZ is still very much underweight in consumer banking in Australia, it is doing much more than any other bank to achieve organic growth.

The executives behind this strategy have been Peter Hawkins, now head of strategy after running the retail bank; and Brian Hartzer, who almost lost his job over a series of operational losses in credit card business but got a second chance and is now running the retail business. Hawkins, more so than Hartzer, is a candidate for the top job. Both have had a hand in the $5 a month, all you-can-eat, repositioning of the basic banking service. If nothing else, they managed to interpret research into what customers hated about, and what they wanted from, banks '” and did something about it.

The head of corporate and business banking is Graham Hodges, a long-time staffer who has rebuilt the bank's position in a segment that is a traditional ANZ strength. Hodges has shifted the bank's business banking strategy. ANZ is now the only bank that will take direct equity investments in its clients. Other key executives in this niche include Joseph Healy, managing director of institutional banking, who used to look after the direct investment portfolio, and Neil Shilbury, head of corporate banking.

Some say ANZ's weak link in management may be John Anderson, a former NBNZ executive, who runs the expanded National banking operation from Australia. Anderson is seeking to position himself as the successor to John McFarlane, but the field is pretty open.

Steve Targett heads ANZ's somewhat shrunken wholesale bank. Targett used to run the wholesale bank for Lloyds TSB in Europe and, before that, a large slice of the equivalent business at National Australia Bank. Targett has stayed out of the limelight in his year or so at ANZ but some tipsters believe he is gunning for the top job.

Ian Rogers is editor of The Sheet at www.thesheet.com.au, a banking newsletter.