National Australia Bank Ltd. [ASX:NAB] announced a new CEO today, which shouldn’t come as a surprise given the performance of Dr Ken Henry at the Banking Royal Commission.
At time of writing, the NAB shares are up 2.03% trading at $27.465.
The NAB share price has been on a relatively steady rise since the conclusion of the Banking Royal Commission:
I don’t think the new NAB CEO Ross McEwan will make a genuinely significant difference to the long-term prospects of the company. And still believe NAB shares aren’t cheap at the moment (from an investment perspective).
New NAB CEO has a wealth of experience, but the banks face two threats
Ross McEwan will join NAB as their new CEO and Managing Director no later than April 2020, and brings significant experience from Commonwealth Bank of Australia [ASX:CBA] and Royal Bank of Scotland.
As per this morning announcement, McEwan trotted out the increasingly trite ‘community’ language:
‘It is essential that I protect and accelerate the bank’s transformation program. The community also expects a higher level of accountability and transparency from the banking industry. Australians deserve NAB to be a world class service provider.’
But the damage to trust has already been done.
In fact, I believe the trust ‘recession’ actually started in 2008 and 2009.
But in some cases economies come out of recessions and trust, once broken, never returns.
The as of yet anonymous Satoshi, who wrote the bitcoin white paper, referenced the bail-outs of big banks during the GFC in the bitcoin genesis block.
So there is a broad, growing global conversation going on about the way money works.
But if crypto is the longer-term threat to the Big Four banks profitability, let’s look at the more immediate threat — fintechs.
It is worth noting that in their most recent half-year results, NAB reported that when broken down into divisional performance, their cash earnings from consumer banking and wealth was down 20.6%.
Their second smallest division by earnings, the bank noted that the result was down to ‘lower margins and higher credit impairment charges.’
Difference between trading and investing key to understanding NAB’s value
I think this obscures part of the picture.
In the coming years, it is possible that credit cards will become a thing of the past, much like the cheque book.
With Quickfee in particular, there is the potential of fintech stocks to eat into not just consumer lending profits, but business lending profits as well.
Business and Private Banking makes up the largest amount of divisional cash earnings in NAB’s half yearly report and this appears to be the next aspect of the Big Four banks that is ripe for disruption.
Which brings us to a final point — the difference between a trade and an investment.
You can trade NAB shares for the next couple of years trying to get a gauge on earnings, capital requirements, return on equity etc., but in terms of an investment, you may be left with little to show unless something drastically changes.
We look at three specific companies which could threaten the Big Four bank profits in the coming years in a free report on fintechs.
For Money Morning