John Stewart

1
John Stewart Managing Director and CEO 11
November 2004
2
Overview of Performance for the September 2004
half
Sep 04 HY
v Mar 04 HY
Bank Peer Average
Cash earnings growth Return on assets Return
on equity Total shareholder return 1 year 3
year 5 year
12.9 26 bps 5.7 points
9.3 0.99 18.2
?
1,611M 0.70 13.1
?
?
?
(7) 4 8
13 14 17
Before significant items Simple average
calculated on half year including results for CBA
(June 04), ANZ, SGB,WBC (Mar 04)
3
Underlying issues identified
2. Regulatory Compliance
1. Culture and People

• 3. Business Inefficiency
• Complexity
• Bureaucratic

• 4. Stalled Revenue
• Inward looking
• Business processes not customer focused

4
Underlying issues identified
1. Culture and People
2. Regulatory Compliance

• 3. Business Inefficiency
• Complexity
• Bureaucratic

• 4. Stalled Revenue
• Inward looking
• Business processes not customer focused

5
Employee engagement
2.Regulatory Compliance
1. Culture People

• 3. Business Inefficiency

• 4. Stalled Revenue

NAB Employee Engagement 36 Australian
Financial Services 54 Global High Performing
Companies 69 Australian Best Employers 77
Average TSR - 9pa
45
Average TSR gt 20pa
65
NAB
Indifferent Zone
30
Uncertain Zone
Average TSR is Negative
Best Employer Zone
CriticalZone
100
0
Benchmark Averages
6
Embedding cultural change
2.Regulatory Compliance
1. Culture People

• 3. Business Inefficiency

• 4. Stalled Revenue

• New Leadership team
• Corporate principles
• Clarity of roles and responsibilities
• Reward strategy
• Performance Management Framework
• Talent Management Strategy

7
Underlying issues identified
1. Culture and People
2. Regulatory Compliance

• 3. Business Inefficiency
• Complexity
• Bureaucratic

• 4. Stalled Revenue
• Inward looking
• Business processes not customer focused

8
Group compliance and risk
2.Regulatory Compliance
1. Culture People

• 3. Business Inefficiency

• 4. Stalled Revenue

Compliance and Quality Failures
Homeside NAFiM unit repricing issues UK
investment sales review FX options trading NIB
Investigations
Cost 3,873m 110m 61m 360m 98m
9
Compliance and risk actions

• New Finance and Risk structure
• FX remedial actions
• Clarifying roles and responsibilities
• Compliance embedded in performance management
  framework

10
Underlying issues identified
1. Culture and People
2. Regulatory Compliance

• 3. Business Inefficiency
• Complexity
• Bureaucratic

• 4. Stalled Revenue
• Inward looking
• Business processes not customer focused

11
Process Inefficiency
Purchase of John Stewarts Computer
2. Managerial IT provide specifications to
Belfast TI purchasing who creates purchase order
7. Glasgow desktop services installs software and
delivers laptop to Wood St
6. Provider send laptop to Glasgow to software
installation
1. Request purchase of computer
3. Belfast emails Order to London for approval
5. Belfast send order to Provider
4. Organise approval - faxes to Glasgow and mails
original to Belfast
Hardware Provider (location not known)
6. Provider send accessories directly to Wood St
12
Regional operating model
New Model
Old Model
One customer
One customer
Three discrete offerings
One integrated offering
Three separate businesses
One customer focused business
By
By
Three separate infrastructures
One streamlined infrastructure
With
With
13
Europe

• Integration and efficiency
• Legal entity merger
• Moving from 77 to 16 core products
• Integrating back offices
• New operating model

14
Europe

• Growth
• Brand repositioning
• New products offset mortgage
• IFS opened 8 new centres
• Third party mortgage distribution launched in
  April 04
• Customer attrition has declined by 5.8 in 2004
• Customer acquisition has grown 6 in last 6
  months after declining for the prior 2 years

15
Underlying issues identified
1. Culture and People
2. Regulatory Compliance

• 3. Business Inefficiency
• Complexity
• Bureaucratic

• 4. Stalled Revenue
• Inward looking
• Business processes not customer focused

16
Tightening risk settings
Housing Lending - Australia
Annual Growth Rates ()
26
24
22
Annual Growth Rates ()
20
18
National
16
Financial System
14
Aug-04
Apr-04
Jun-04
Oct-03
Feb-04
Dec-03
Aug-03
Source RBA/FSA
17
Addressing revenue issues

• Understanding customer needs
• Developing customer propositions
• Returning to normal credit settings
• Putting bankers back into the field
• Removing Blockages
• Changing Hierarchy

18
Changing hierarchy
CEO
19
Changing hierarchy
CEO
20
Common themes Before the Fall

• Long period of unbroken success
• Hubris, and Senior Management become inwardly
  focused, unable to hear what customers and
  employees are saying
• Internal rules and policies become constraining
  paradigms but invisible to internal management
• Multiple change programs and investments that
  dont work, but do draw management attention away
  from customers
• Markets see reality before management does

21
Rebuilding the National

• Progress so far
• Board and executive teams renewed
• Underlying problems identified
• Transitioning to a new operating model
• Embedding cultural change
• FX remedial actions
• Implementing Europe plans

22
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