The Australian group behind Yorkshire, Irish and Clydesdale banks is being forced to rejig its operation, but that in turn may make it vulnerable to takeover, says Sean Brierley
Australia’s largest and most ambitious bank is forcing through a radical restructure of its UK retail banking operation involving the merger of the marketing functions of its four UK banks. Some sources believe it could lead to a new high street brand.
National Australia Bank is merging the marketing operations of its UK and Irish Republic subsidiaries: Yorkshire Bank, Clydesdale Bank, Northern Bank and Northern Irish Bank in the run up to the acquisition of an English building society. The four banks represent 23 per cent of NAB’s total earnings, re-flecting their importance to the organisation.
The bank has been in the UK retail banking market for ten years when it took over Clydesdale Bank, yet is not a household name. But in the City it has become one of the most talked about predators in the UK banking market. This year it was been linked with the takeovers of National & Provincial Building Society which went to Abbey National and Bristol & West which was bought by the Bank of Ireland.
Marketing Week understands that the bank is also in negotiations with the Woolwich Building Society to acquire it before its planned flotation in July next year.
It is also looking for a single advertising agency to work across its bank brands. This could mean producing one ad and adapting it to each of the banks with regional amendments – an umbrella NAB brand could be included to boost its UK profile. Yorkshire and Clydesdale Banks are currently without advertising agencies and a cost-cutting media centralisation is imminent (MW October 11).
NAB has accelerated plans to centralise and rationalise its UK subsidiaries because of pressures on profitability in its domestic market. The original timescale would have seen centralisation by the end of 1997 but the Australian national economy has slowed and NAB has lost substantial profits in a home loans war. “The regional banks have always been fiefdoms, NAB is flexing its muscle,” says one source close to Yorkshire Bank. There is some resistance to the merger proposals, especially in Yorkshire Bank’s marketing department. “It is intensely political at the moment,” says the source.
Another factor hastening the centralisation has been the spiralling cost of introducing an integrated IT system. Codenamed ABC, the system will standardise banking platforms across NAB’s banks. Yorkshire Bank began testing it a year ago, but the roll out at Clydesdale was stalled because of teething problems. The new system was initially costed at 40m but is now understood to have hit 200m.
Since it took control, NAB has cut costs at both Yorkshire and the Clydesdale Bank in an effort to make them more profitable. According to one Yorkshire Bank insider, this not only means combining different marketing functions but actively trying to weed out non-profitable customers to improve margins and refocus on more profitable small business customers.
All four banks are under pressure to cut costs. Marketing budgets are understood to have been cut to pay for restructuring. NAB has a portfolio of banks rooted in the low-profit current account market and – true to the Australian parentage – among farmers. But it has also bought up a low-margin base, weak in mortgages, insurance and loans.
Bruce Rose, general manager of NAB, says the bank is undergoing rapid change. “Where we can get some synergy benefits we will endeavour to do so,” he says. Rose claims that the marketing function in each of the banks will be retained but admits that where there is a duplication of effort marketing will be brought together. Market research, and some parts of marketing communications and media management are potential merger targets.
The merged operation will bring out single new products rather than four separately branded ones.
Last year Clydesdale introduced a telebanking operation which is likely to roll out to other banks. Sources say it is considering moves into phone banking, direct selling of insurance and Peps and smart/ credit cards in a bid to attract more upmarket customers.
No matter how much NAB is able to merge the operations of the four banks, it is clear that a jigsaw of separate regional brands will find it difficult to consolidate and achieve economies of scale especially when the big national players continue to merge and concentrate.
NAB’s ambitions extend beyond the UK to mainland Europe. At a corporate level, the company is involved in trying to set up a Global Wholesale Bank, which is being run in Europe by former Citibank executive Michael Soden. The GWB plan will be put to the NAB board this month with the intention of poaching corporate customers from established investment banks.
Yet despite speeding up its marketing centralisation, NAB may soon be dogged by problems closer to home. In Australia it is understood to be about to announce a widespread branch closure programme.
The Wallis Inquiry in Australia is due to report in March. It will recommend a liberalisation in banking, allowing for the first time foreign ownership of Australian banks.
Ironically NAB is one of the most likely targets for takeover and Lloyds TSB is among the tipped bidders. NAB will want to be in the best shape possible in the liberalised market to either defend itself against a bid or maximise its value should a bid be successful. Which goes some way to explaining the centralisa tion in one of its most important markets.