Executive Interview - Paul Orton - General Manager Corporate Banking, National Australia Bank
(21 December 2005 - Australia) As part of a restructuring program in late 2004, National Australia Bank promoted Paul Orton to general manager of Corporate Banking with the remit of overseeing relationship management and product delivery in the hyper competitive Top 500 market segment in Australia. Despite having undergone a challenging past 18 months, East & Partners' research shows NAB is recovering strongly in the Top 500 corporate segment and is primed for a strong 2006. East & Partners senior consultant Paul Bartholomew spoke to Paul Orton about the benefits of the new structure and the impact it has had on NAB’s client relationships.
National Australia Bank has undergone significant restructuring over the past 12 months or so. Could you provide an overview of how the Corporate Bank is now structured?
In October 2004 when Ahmed Fahour was appointed, we recut our operating model to have a regional focus. What was previously within NAB Corporate and Institutional bank was split into Institutional Markets & Services (IMS), which is our global products and markets business; and Corporate Banking, which covers our relationships with clients within the Top 500 segment in Australia. Alongside corporate banking there’s the Major Client Group (MCG) which is the top end of our business banking which includes clients with turnovers of about A$35 million and above. We’ve also brought the Private Bank into the Corporate Banking structure. As a result, we have Corporate Banking, the Major Client Group and Private Bank as three distinct client segments all sitting within the one management structure.
What are the advantages of this new structure?
By having them within the one banking structure, we can ensure there is no tension between Corporate and the Major Client Group; that our focus is entirely on the customer rather than being sidetracked by internal debates about who should be servicing which clients. Our relationship managers focus on the client, not the product sets.
Why have you decided to include the Private Bank in this structure?
We are leveraging our Corporate and Major Client Group relationships into the Private Bank and vice versa. Most company executives need private banking services to make their own private, personal finances easy, and our model in particular saves them time and effort, which for them is crucial. We also have a number of clients within the Private Bank with whom we don’t have a relationship with their company, so by bringing the Private Bank into the same management structure as the Corporate Bank and Major Client Group, we can ensure we get focussed across those client segments, rather than just worrying about clients within their own segment. For the bank there’s been quite a change: if you think of the three businesses that I’m responsible for, one used to sit in each of the former Corporate & Institutional Bank, Australian Financial Services and MLC. Now they’re all under the one team looking to do what ever makes sense for our clients.
How much of a challenge is it to get all the Bank’s people, Relationship Managers, product specialists etc to sing from the same, new song sheet?
We have excellent people and if you set top people a task they’ll typically be very successful. For example, we’ve always been reasonably good at cross sell; I think we’ve not supported that because we haven’t had the performance measurement aligned with what we wanted the bankers to do. Again, that’s all changed. Increasing the linkage between the Corporate bankers and all the products rather than just the IMS products, our bankers see that as a real opportunity for them because now they have responsibility for meeting all the clients’ needs, rather than historically being focussed on just some of those needs. And for our clients, they win in that they can receive what they need from one relationship. They don’t have to shop around, which saves them time and money. So they have access to a true one-stop financial supermarket.
So are customers seeing a different National Australia Bank in terms of the way bankers are servicing them?
We’ve always been excellent at customer relationships and that’s been seen over the past year, that’s why NAB is the country’s leading business bank. If you look at how the bank has performed in the large Corporate space over the past 12 months, in the syndicated loan table – which is just one of many metrics you can use to measure performance in the large Corporate space – it’s been excellent. But also the way in which we’ve rapidly grown our market share in the Business Banking sector, has shown that the franchise is very strong. We haven’t lost customers or the relationships we’ve always had with customers. And now we’ve got our people able to have a better quality and broader range of conversation than we encouraged them to have in the past. Again, this is about the Bank and senior management giving our relationship managers the tools, the strategies and support to go out and do what they should have been doing for a long time. So our people see it as a real opportunity; it’s not really about changing their behaviour; it was the organisation that tended to constrain them, and now we’ve made it easier for our people to help their customers.
So your RMs have taken to this new approach and structure well?
They have. To some extent some of our RMs would have felt that historically they hadn’t been playing on an equal playing field with their competitors because they didn’t have access to the breadth of product that some of our competitors had. We had the product internally but our operating model hasn’t been consistent with helping our people sell it. We are continually making it easier for our people to shine. And that is one reason why people are realising NAB is now one of the best banks to work at.
Our metrics show that your competition haven’t been as successful at taking business off you as they might have anticipated, given some of the Bank’s challenges over the past 18 months.
I think that’s the case across the different segments; we’ve also seen that in the Business Banking space as well as the larger Corporate space You don’t get to be the lead bank, or a joint lead in a number of the large M&A transactions, unless you’ve still got very strong relationships. What we’ve been able to do over the last 12 months is to give those large corporates the confidence that the bank is there for them and that we deliver. I think we’ve managed to achieve a real change with those clients in a relatively short space of time; to give them renewed confidence. Our clients have the confidence that we can deliver in a short space of time and then actually be there on the day.
Other Big Four banks have gone down the Investment Banking path, offering advisory services. Is this something that is essential to play in that space?
I don’t think it’s essential. At the end of the day you have to play to your strengths. Over time you seek to develop your strengths in other areas and we’re certainly looking to do that. We’re a bank that is looking to develop a range of different product. For example, over the past 12 months we’ve developed a mezzanine debt product capability which historically the bank has never had. This year we won our first major mandate to arrange equity for a property transaction in Melbourne, a very substantial tranche of equity. Again, historically, it’s a product that the bank has never had. They are just two of the new developments over the past 12 months.
Investment Banking markets for commercial banks can be a bit of a graveyard.
We see our strengths as being our franchise, our distribution, our client relationships and expertise in structuring the products that we know well, and that sit alongside some of our core products, in the Institutional market and the Business Banking market and Retail and Private Bank space. We can originate the transaction; we can structure the transaction and then sell the transaction. Historically we’ve been good at structuring and originating, we haven’t used our distribution base nearly as much as we can. We only want to be involved as a number one, two or three in any product or market we enter; we have no interest in being a number six or seven, so we’ll look for those sectors and products where we can be a top player because otherwise you tend to undermine the quality of the offering that you’re able to deliver to your clients. Every product that you take to your client has to be a top quality product, it has to be leading edge and you have to continue to innovate; you have to have the best people.
What about the Top 500 space in general, it’s highly banked, competitive and not seeking much in the way of new capital. So how do you go about growing your business in such an environment?
It’s all about serving our customers. Historically NAB saw lending as the core product upon which to build a relationship and I think some of our competitors realised earlier than we did that the transactional banking product is also a core of relationships. We didn’t develop that as quickly as some of our competitors. You have seen the funding sources for the major corporates diversify much over the past couple of years and I expect that to continue with a larger range of corporates raising money in the offshore markets and there’s no doubt the Australian bond markets will develop even further over the next few years; they’ve already developed over the past two years from being solely investment grade into becoming BBB- level in terms of volume and tenor. So if anyone believes that the bank market will become more attractive, I think they’re misreading the situation. It means you have to be able to deliver a broader range of product to your clients. Lending by itself is a core product but it’s not THE product; it’s something you build off.
That’s certainly what East & Partners has been saying for the past three years.
I think the Australian funding market is starting to get to where the US and European markets were five to 10 years ago. You cannot just be a lender; you’ve got to be able to do everything and do it well.
In October 2004 when Ahmed Fahour was appointed, we recut our operating model to have a regional focus. What was previously within NAB Corporate and Institutional bank was split into Institutional Markets & Services (IMS), which is our global products and markets business; and Corporate Banking, which covers our relationships with clients within the Top 500 segment in Australia. Alongside corporate banking there’s the Major Client Group (MCG) which is the top end of our business banking which includes clients with turnovers of about A$35 million and above. We’ve also brought the Private Bank into the Corporate Banking structure. As a result, we have Corporate Banking, the Major Client Group and Private Bank as three distinct client segments all sitting within the one management structure.
What are the advantages of this new structure?
By having them within the one banking structure, we can ensure there is no tension between Corporate and the Major Client Group; that our focus is entirely on the customer rather than being sidetracked by internal debates about who should be servicing which clients. Our relationship managers focus on the client, not the product sets.
Why have you decided to include the Private Bank in this structure?
We are leveraging our Corporate and Major Client Group relationships into the Private Bank and vice versa. Most company executives need private banking services to make their own private, personal finances easy, and our model in particular saves them time and effort, which for them is crucial. We also have a number of clients within the Private Bank with whom we don’t have a relationship with their company, so by bringing the Private Bank into the same management structure as the Corporate Bank and Major Client Group, we can ensure we get focussed across those client segments, rather than just worrying about clients within their own segment. For the bank there’s been quite a change: if you think of the three businesses that I’m responsible for, one used to sit in each of the former Corporate & Institutional Bank, Australian Financial Services and MLC. Now they’re all under the one team looking to do what ever makes sense for our clients.
How much of a challenge is it to get all the Bank’s people, Relationship Managers, product specialists etc to sing from the same, new song sheet?
We have excellent people and if you set top people a task they’ll typically be very successful. For example, we’ve always been reasonably good at cross sell; I think we’ve not supported that because we haven’t had the performance measurement aligned with what we wanted the bankers to do. Again, that’s all changed. Increasing the linkage between the Corporate bankers and all the products rather than just the IMS products, our bankers see that as a real opportunity for them because now they have responsibility for meeting all the clients’ needs, rather than historically being focussed on just some of those needs. And for our clients, they win in that they can receive what they need from one relationship. They don’t have to shop around, which saves them time and money. So they have access to a true one-stop financial supermarket.
So are customers seeing a different National Australia Bank in terms of the way bankers are servicing them?
We’ve always been excellent at customer relationships and that’s been seen over the past year, that’s why NAB is the country’s leading business bank. If you look at how the bank has performed in the large Corporate space over the past 12 months, in the syndicated loan table – which is just one of many metrics you can use to measure performance in the large Corporate space – it’s been excellent. But also the way in which we’ve rapidly grown our market share in the Business Banking sector, has shown that the franchise is very strong. We haven’t lost customers or the relationships we’ve always had with customers. And now we’ve got our people able to have a better quality and broader range of conversation than we encouraged them to have in the past. Again, this is about the Bank and senior management giving our relationship managers the tools, the strategies and support to go out and do what they should have been doing for a long time. So our people see it as a real opportunity; it’s not really about changing their behaviour; it was the organisation that tended to constrain them, and now we’ve made it easier for our people to help their customers.
So your RMs have taken to this new approach and structure well?
They have. To some extent some of our RMs would have felt that historically they hadn’t been playing on an equal playing field with their competitors because they didn’t have access to the breadth of product that some of our competitors had. We had the product internally but our operating model hasn’t been consistent with helping our people sell it. We are continually making it easier for our people to shine. And that is one reason why people are realising NAB is now one of the best banks to work at.
Our metrics show that your competition haven’t been as successful at taking business off you as they might have anticipated, given some of the Bank’s challenges over the past 18 months.
I think that’s the case across the different segments; we’ve also seen that in the Business Banking space as well as the larger Corporate space You don’t get to be the lead bank, or a joint lead in a number of the large M&A transactions, unless you’ve still got very strong relationships. What we’ve been able to do over the last 12 months is to give those large corporates the confidence that the bank is there for them and that we deliver. I think we’ve managed to achieve a real change with those clients in a relatively short space of time; to give them renewed confidence. Our clients have the confidence that we can deliver in a short space of time and then actually be there on the day.
Other Big Four banks have gone down the Investment Banking path, offering advisory services. Is this something that is essential to play in that space?
I don’t think it’s essential. At the end of the day you have to play to your strengths. Over time you seek to develop your strengths in other areas and we’re certainly looking to do that. We’re a bank that is looking to develop a range of different product. For example, over the past 12 months we’ve developed a mezzanine debt product capability which historically the bank has never had. This year we won our first major mandate to arrange equity for a property transaction in Melbourne, a very substantial tranche of equity. Again, historically, it’s a product that the bank has never had. They are just two of the new developments over the past 12 months.
Investment Banking markets for commercial banks can be a bit of a graveyard.
We see our strengths as being our franchise, our distribution, our client relationships and expertise in structuring the products that we know well, and that sit alongside some of our core products, in the Institutional market and the Business Banking market and Retail and Private Bank space. We can originate the transaction; we can structure the transaction and then sell the transaction. Historically we’ve been good at structuring and originating, we haven’t used our distribution base nearly as much as we can. We only want to be involved as a number one, two or three in any product or market we enter; we have no interest in being a number six or seven, so we’ll look for those sectors and products where we can be a top player because otherwise you tend to undermine the quality of the offering that you’re able to deliver to your clients. Every product that you take to your client has to be a top quality product, it has to be leading edge and you have to continue to innovate; you have to have the best people.
What about the Top 500 space in general, it’s highly banked, competitive and not seeking much in the way of new capital. So how do you go about growing your business in such an environment?
It’s all about serving our customers. Historically NAB saw lending as the core product upon which to build a relationship and I think some of our competitors realised earlier than we did that the transactional banking product is also a core of relationships. We didn’t develop that as quickly as some of our competitors. You have seen the funding sources for the major corporates diversify much over the past couple of years and I expect that to continue with a larger range of corporates raising money in the offshore markets and there’s no doubt the Australian bond markets will develop even further over the next few years; they’ve already developed over the past two years from being solely investment grade into becoming BBB- level in terms of volume and tenor. So if anyone believes that the bank market will become more attractive, I think they’re misreading the situation. It means you have to be able to deliver a broader range of product to your clients. Lending by itself is a core product but it’s not THE product; it’s something you build off.
That’s certainly what East & Partners has been saying for the past three years.
I think the Australian funding market is starting to get to where the US and European markets were five to 10 years ago. You cannot just be a lender; you’ve got to be able to do everything and do it well.
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