ALAN KOHLER, PRESENTER: This week NAB Chief John Stewart signed off his final set of annual results - an 11 per cent decline in cash earnings to just under $4 billion. The profit was dragged down by the bank's exposure to a billion dollars worth of US mortgages.
In fact John Stewart's four and a half years running the bank has been book-ended by turmoil, from foreign exchange trading scandal that saw him parachuted in from the UK to the current financial meltdown.
I spoke to him earlier in the week.
(to John Stewart) Well John Stewart, it's your last profit report this week, when you brought out your first one in 2004 in the media release you said it was a "poor result" and it was "unacceptable" and the profit fell 15 per cent to $3.46 billion, that's cash profit, and this week you reported a 10 per cent decline to $3.9 billion cash profit, right. So while you have been here you produced a 3 per cent annual compound growth in profit. It's not much.
JOHN STEWART, CEO, NAB: I'm sure that's absolutely true and at the same time stock markets of course have dropped by 25, 30 per cent or whatever, I'm just glad that the bank is in a healthy position and that all of our businesses are doing well and the stock market will recover sometime but I can't control the stock market.
ALAN KOHLER: No, no, I'm talking about your profit?
JOHN STEWART: That's right.
ALAN KOHLER: It's actually less than it was. Your last profit is less than Frank Cicutto's last profit.
JOHN STEWART: Sure and it will be the same for the other banks probably because they'll all be down and it will be the same for the miners and all the other companies because the stock market is down by, I don't know, 25 per cent, 30 per cent.
ALAN KOHLER: Yeah but it's been a good four years for banking. The last 12 months has been bad, that's true, and there's been a 10 per cent decline in profit; but over what you would have to say is a boom period for banking you haven't managed to grow the profit.
JOHN STEWART: There was one instance in our profit was an ABS CDO, which was a write-off, half a billion, you put that back on and it would be $4.7 billion which would be now a very impressive profit and that translate is what all the underlying businesses are doing, but look it doesn't bother me, those are the facts.
ALAN KOHLER: But do you feel disappointed?
JOHN STEWART: I feel disappointed about the write-off and that's it, we made a mistake with ABS but if you look at the quality of all the underlying businesses since our results came out, in the last two days our share price has gone up 10 per cent so the market must have liked the figures.
ALAN KOHLER: The Government has introduced a bank deposit guarantee which has turned into a bit of a political mess, I suppose, but where do you stand on that was it necessary and where should the cap be if there is one?
JOHN STEWART: It was necessary, now there are two things, firstly there's deposits, and the reason something had to be done with deposits is because people were taking their money out of the small banks thinking they were unsafe, which they are not by the way, and putting it into big banks like us, well that would stop the small banks being able to lend and you would get a credit crunch and so we had to do something to stabilise that and the Government have come in with the deposit guarantee and I think there is going to be a limit on it now, we need some tinkering with it to get it right.
But the other thing is the wholesale guarantee, and that's because on credit markets, international credit markets have been closed over recent weeks, they've started to open the last few working days but what that would mean is we can get lots of funding but it's at the short end.
Well, I'm not prepared to take all my funding at the short end so what my choice is if I can't get the funding I'm going to stop lending, what that would've done, if all the banks had done the same thing, is it would've produced a credit crunch so it would've taken a debt market problem and put it into the real economy, and that's what the government were aware of that's why they came in with the wholesale guarantee scheme.
ALAN KOHLER: It's been a volatile week again this week, I mean every week seems to be but where do you stand now at the end of this week?
JOHN STEWART: What was individual banks then became the banking system in the country then became almost the sovereign risk, I think all of that can get sorted out with the help of the IMF, but it's all got to be tidy because what started with Ireland saying, 'Look, we'll guarantee things' and didn't realise it would distort all the markets in the UK, it's what you are seeing in various different countries, we need that sorted out, when it is sorted out then people are going to wake up which I think they are starting to now, what's spooking everyone is we are going into world recession, and the UK and the US are going to have a really hard time.
ALAN KOHLER: Do you think we're going into a world recession?
JOHN STEWART: Oh yes.
ALAN KOHLER: And what does that mean to you? Does it mean below zero world growth?
JOHN STEWART: No, no, I doubt if it will be. But certainly the main engines like the US, I think, will go into a technical recession. And look it will depend on what happens to China, I guess, I mean right now China's looking fine.
ALAN KOHLER: Do you think it's looking fine?
JOHN STEWART: Well, we think China's going to slow and you might get, instead of 10 per cent growth you might get seven or eight. But if that was a lot lower it would be a lot worse.
ALAN KOHLER: Is it going to restrain bank lending and therefore economic activity for five years?
JOHN STEWART: With a bit of luck, not because that's why the governments are intervening because they've realised that's what's happening, in fact in some cases in the United States they're just not lending so they are trying to provide the liquidity and the capital to get the banks working again.
But once you put government capital into banks you don't want to leave it there, at least I wouldn't want to in my bank, so the government has got to try and extract itself eventually so that capital is going to have to be repaid and that will take a long time.
ALAN KOHLER: And finally, what do you think it's going to be like next year for your successor? I mean, do you think he'll come out with his first profit and say, "It's a poor result and it's unacceptable", just as you did with your first profit?
JOHN STEWART: I think he'll have a good set of results. Remember again you take one, there's one item in our results this year that's worth a billion, so hopefully, touch wood, that's not going to happen again, all the banks are in a steady state, look, I'm sure he'll want to tinker and there are things he'll want to change but I think he'll have a good run.
ALAN KOHLER: Thanks very much for joining us John Stewart.
JOHN STEWART: It's been my pleasure Alan, thank you.
NAB Price at posting:
$20.15 Sentiment: None Disclosure: Not Held
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