“We believe very strongly in the power of data and … will continue to grow our capabilities in that area,” Irvine told reporters Wednesday. Ta.
For several years, Mr McEwan has explained the drop in investment spending by saying NAB is leaner and more focused. “This approach may not necessarily change, but [but] A fresh set of eyes may identify areas to prioritize investment,” said JPMorgan’s Andrew Triggs.
NAB has largely completed remediation stemming from the Hayne investigation, including $1.4 billion paid to 800,000 customers who were charged fees for services they did not provide. This resulted in a higher compensation claim than other banks. Costs related to enforceable commitments with AUSTRAC relating to anti-money laundering issues will also soon be incurred.
Brian Johnson, now a veteran analyst at MST Marquee, said NAB can afford to increase its investment in technology to digitize and improve customer interfaces to about $2 billion a year. He gives NAB a ‘hold’ rating on Australian banking stocks.
Mr Irvine should protect NAB from moves by the Commonwealth Bank to use data insights from its retail banking franchise to increase its share of business banking against NAB, and ultimately follow in the footsteps of Westpac. The company may consider building a new infrastructure system, Johnson told customers.
“Eventually, NAB may need to re-platform its core operating system. However, NAB works under a number of brands and systems that structurally embed Westpac’s high-cost foundation. That’s not the case,” he said.
Westpac CEO Peter King said in November that he would invest $2 billion a year in investment spending to restructure its technology platform and reduce the number of systems in operation to make up for a 15-year investment shortfall. He said he would increase the amount to
ANZ has invested in a new retail banking system known as ANZ Plus, and CBA has maintained a major IT investment program for many years to build digital apps and a new business payment collection system known as Powerboard.
NAB also needs to keep pace with rapidly advancing technology companies that have entered business financing through payments, such as Square (owned by Block), which sells payment terminals and makes loans to small and medium-sized businesses, and PayPal, which also lends money. be. Online payment service. In response, NAB has developed small business software through his data portal known as Hive.
NAB spends about $500 million less on technology each year than other large banks. oscar coleman
NAB is scheduled to release its first quarter trading update on February 21, before announcing its half-year results on May 2, a month after Mr Irvine officially took over.
Reflecting McEwan’s conservatism, the company has a strong balance sheet with the highest loan loss provisions in the sector. However, like other banks, NAB faces a number of headwinds, including narrowing margins due to rising funding costs. In the second half of 2023, NAB’s 50% revenue decreased by 4%, net interest margin contracted by 7 basis points and costs increased by 4%.
According to Bloomberg, of the 14 analysts covering NAB, seven recommend hold, four recommend buy (Barrenjoey, JP Morgan, Jarden, Goldman Sachs), and three recommend sell (Citi, CLSA). , Evans & Partners).
Barrenjoey analyst Jonathan Mott remains overweight after Irvine’s appointment, writing that this “likely eliminates the share price overhang.” “Given the positive medium-term outlook for business banking, we see NAB as relatively well-positioned within the sector. Losses within the books of SMEs have been reduced as the risk of a difficult landing has been reduced. The chances of doing so have decreased.”
Meanwhile, Citi analyst Brendan Sproles maintained his sell rating on NAB. Mr. Irvine was set a very high bar by Mr. McEwan, and took on the top role in a “more challenging environment for business banking, including slower system growth,” he wrote.
Jefferies analyst Matt Wilson, who is keeping NAB unchanged, said interest rates could remain high for an extended period if inflation continues, making him cautious about the outlook for businesses and over-indebted households. .
Mr. Wilson expects margins to continue to shrink due to competition between deposits and mortgages, but given the soaring stock price, it seems like a reasonable time for incumbent managers to jump in. “2024 is shaping up to be the year of CEO succession at major banks. Long-tenured CEOs are seeing peak stock prices and core earnings performance against an uncertain macro outlook,” he said.