National Australia Bank (NAB) chief executive, Phil Chronican is only “moderately” confident that sufficient work will have been done on client remediation to clear the way for the separation of the bank’s wealth management business, MLC, in the second half of 2021.
What is more, he has made clear that it could be six months before the bank can be confident that MLC is going to commercially robust enough to withstand separation from the larger banking group.
In a frank admission to a key Parliamentary Committee, the NAB chair and acting chief executive acknowledged that the while the big banking group was pushing towards a 2020 separation it was far from certain with three threshold issues standing in the way.
“We're still planning on it happening, so we're pushing through for something to happen in the second half of calendar 2021. But obviously there are three threshold tests we need to get through,” he said.
“First, the separation activities are ready—that I'm reasonably confident of. Second, that we make sufficient progress on the remediation work that we're able to set for that not to be an overhang I'm moderately confident on. And, thirdly, that the underlying health of the business is remediated to the point that it can sustain itself, and we'll have a better view of that after we get through the next six months.”
Chronican acknowledged that the bank may have been unduly optimistic when it suggested that the separation of its wealth management businesses might have been achieved this year.
NAB later noted that Chronican had corrected his statement to the Parliamentary Committee and that in his reference to 2021 he actually meant 2020.
“When we announced that we were going to separate it, which was early in 2018, there was a view, I think, at the time among management that that was something that could have been achieved this year, 2019,” he said.
However, he said a combination of two or three things meant this was simply not possible.
“One is that we needed to functionally separate the business. There have been several years of integrating many of its core systems and processes—things such as its finance systems, payroll and so on. If we're going to separate the business, it needs to be able to stand on its own in those so there are separation activities.”
“Secondly, and importantly, the remediation that we were just speaking about—the adviser service fee issues among the NAB financial planners and the dealer groups—sits under the wealth arm, and therefore the wealth business would not have the financial resources on its own to go through that remediation,” Chronican said.
He said: “the bank has to support that remediation activity, and obviously we can't separate the business off onto a new owner with a massive overhang of that scale”.
“One of the reasons, as I was saying, that we're incented to move quickly on that remediation is that it does run the risk of getting in the way of our separation plan,” Chronican said. “Thirdly, and equally importantly, the business has to be sustainable on its own. Because the business has been through a rough patch, some parts of the business are still going through funds outflow and, again, we can't in good conscience pass the business onto new owners unless we are confident that it's sustainable on its own.”