New Broom

National Australia Bank announced the appointment of Ross McEwan as its new CEO, which Ord Minnett expects to be well received by the market. McEwan is currently the outgoing CEO of the Royal Bank of Scotland (RBS) in the UK. Prior to joining RBS, he was the head of Commonwealth Bank’s (CBA, Hold) retail banking services division for five years.

 

We had viewed McEwan as the preferred of two main likely external candidates for the role, and we believe his appointment should give the market additional confidence in NAB’s medium- and long-term outlook. An external appointment also allows a fresh look at what needs to be done to improve NAB’s culture.

 

In his comments in the release, McEwan said it was essential that he “protect and accelerate the bank’s transformation program”. He said there were a number of areas where NAB could extend its lead, such as business banking, agriculture and health. He committed to meeting and exceeding the expectations of NAB’s many stakeholders.

 

McEwan will commence as NAB CEO once his obligations to RBS have been discharged, no later than April 2020 (one year following his resignation from RBS in April 2019). Interim CEO and chairman-elect Phil Chronican will transition from interim CEO to chairman in mid-November 2019, replacing Dr Ken Henry. The board will then put in place other interim management arrangements suitable to the Australian Prudential Regulation Authority if required.

 

We see potential upside to the current share price given NAB’s attractive valuation and the likelihood of greater revenue resilience than peers against a challenging banking backdrop. We maintain our Accumulate recommendation with a $29.60 target price.

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