NAB Is Set For A Fall
Today, I saw an advertisement for the National Australia Bank on the side of a bus station that ran something like "A rate rise needn't lower your confidence". I wonder how the Reserve Bank of Australia feels about NAB expressly contradicting the implicit message it delivered to Australians when it increased the official cash rate by twenty five points at its last meeting. Of course, the major banks are bullishly seeking out customers to throw debt at during these times of plenty, in spite of a number of warning signs of future economic trouble that the RBA detected and acted upon at its last meeting. The RBA's move to throttle the economy by raising the price of debt was a sensible one, I believe. I don't think our current debt-funded consumption boom is sustainable. And the Chinese economic miracle that is fuelling such exuberence is a house of cards.
Still, the storm clouds seem barely visible to most at this stage, and it's interesting to reflect on how a few good years can influence an institution. I always find it fascinating to watch the market at work, and NAB's ad is particularly noteworthy because it's a tacit admission that the company is "overshooting" the economic cycle - along with the others, this time around. NAB's culture seems to have changed markedly since it was the financial sector's market darling in the 1990s. Throughout that decade, NAB continuously smashed profit records - usually the record it set in the previous year. NAB set itself up for a decade of overachievement by being shrewdly parsimonious during the halcyon days of the 1980s, when other Australian banks - most notably, Westpac - were doling out commercial credit like water, to ugly effect in the late 80s and early 90s. Times have changed. NAB and the others are still scratching around for customers to throw money at, against a backdrop of rising interest rates and falling yields in the seminal and highly competitive home loan market. Commonwealth, the market leader in residential mortgages, is a worry - in the fullness of time, I suspect that the quality of the vast home loan asset pool of debt it's acquired (and the source of most of CBA's profit) will turn out to be rather less sound than it looks at present.
Anyway, back to NAB. The bank's stock has underperformed of late - it's hardly moved from its mid-late 1990s anchor point of between $30-$33. From memory, it hovers around $35 these days. I concur with the market's bearishness on the stock, though not for the same reason - the market still seems somewhat preoccupied by the relatively minor forex scandal of a couple of years ago. I, on the other hand, think NAB's lost the fiscal discipline that allowed it to weather the 1987 crash and ensuing slump relatively unscathed, all the better to power through the 1990s and past its competitors. This latest ad from NAB, blatantly whipping up further irrational exuberence, confirms my suspicions exactingly.
Still, the storm clouds seem barely visible to most at this stage, and it's interesting to reflect on how a few good years can influence an institution. I always find it fascinating to watch the market at work, and NAB's ad is particularly noteworthy because it's a tacit admission that the company is "overshooting" the economic cycle - along with the others, this time around. NAB's culture seems to have changed markedly since it was the financial sector's market darling in the 1990s. Throughout that decade, NAB continuously smashed profit records - usually the record it set in the previous year. NAB set itself up for a decade of overachievement by being shrewdly parsimonious during the halcyon days of the 1980s, when other Australian banks - most notably, Westpac - were doling out commercial credit like water, to ugly effect in the late 80s and early 90s. Times have changed. NAB and the others are still scratching around for customers to throw money at, against a backdrop of rising interest rates and falling yields in the seminal and highly competitive home loan market. Commonwealth, the market leader in residential mortgages, is a worry - in the fullness of time, I suspect that the quality of the vast home loan asset pool of debt it's acquired (and the source of most of CBA's profit) will turn out to be rather less sound than it looks at present.
Anyway, back to NAB. The bank's stock has underperformed of late - it's hardly moved from its mid-late 1990s anchor point of between $30-$33. From memory, it hovers around $35 these days. I concur with the market's bearishness on the stock, though not for the same reason - the market still seems somewhat preoccupied by the relatively minor forex scandal of a couple of years ago. I, on the other hand, think NAB's lost the fiscal discipline that allowed it to weather the 1987 crash and ensuing slump relatively unscathed, all the better to power through the 1990s and past its competitors. This latest ad from NAB, blatantly whipping up further irrational exuberence, confirms my suspicions exactingly.
posted by James Waterton at 2:44 pm
1 Comments:
Er, and you DO know that nab paid several squillions of dollars earlier this year to rebrand themselves as an acronym in lower case, don't you James, hmmm?
(Funny, since we spent years - as vendors - being castigated for using the NAB acronym, in upper case. We had to call them by their full name, or "National Bank", if rushed. Gave me a sneering sort of chuckle when I saw the result of the rebranding exercise. Bloody brilliant.)
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