The Nedbank Turnaround

1
The Nedbank Turnaround
Tom BoardmanChief Executive Nedbank
GroupMarch 2006
2
SA Bank market capitilisations
3
Setting the scene
NEDCOR LIMITED Close
Monthly 31/01/1995 31/01/2004
18000
18000
16000
16000
3
14000
14000
2
4
12000
12000
1
10000
10000
8000
8000
5
6
6000
6000
7
4000
4000
3000
3000
1995
1996
1997
1998
1999
2000
2001
2002
2003
04
NEDCOR LIMITED Close (6820)

• KEY
• Standard Bank takeover bid announced 2.
  Standard Bank bid discontinued
• 3. Didata issued profit warning 4. BoE
  acquisition approved
• 5. CE resigned
• 6. Didata disposal Tom Boardman appointed as
  CE 7. Issue of secondary capital

4
Campbell Belman survey
5
Key financial indicators
For the year ended Dec 03
Headline earnings Rm 55
Headline EPS cents 19
Headline EPS (excl FX) cents 502
Attributable earnings Rm (1600)
Attributable EPS cents (546)
ROE 0,4
Efficiency ratio (excl FX) 72,5
Efficiency ratio (excl FX MR cost) 69,8
6
What went wrong?
Where Nedbank failed

Strategy No clear Group strategy resulting in
misalignment between units Strategic drift
Structure Complex structure reflective of lack of
Group direction and piecemeal fixes Lack of
accountability slow decision making, excessive
bureaucracy and complex processes to deal with
lack of ownership Mission critical functions
unattended (Risk, MIS)
Delivery Poor delivery primarily due to lack of
direction and excessive bureaucracy
High performance culture Culture of shaming and
blaming Superficial alignment between strategy,
performance measures and remuneration
7
10 steps for shifting an organisation

• Develop a vision, mission, strategy and operating
  plan
• Set high expectations with specific goals
  objectives
• Build trust
• Define persons and groups goals,
  responsibilities and job content
• Agree on measures for people to track how they
  are doing
• Give frequent feedback and relate to plans
• Continuously update people on external situation
• Recognise and praise success and progress
• Reward success and the desired behaviour
• Celebrate success together and share setbacks

Management Review / January 1988
8
Growth
Growth
Vision
Values
Strategy
Resources
Action Plan
Skills
Commit- ment
Review
Confusion

Corruption

Diffusion

False Starts

Frustration

Stress

Crawl

Doubt
9
Road map

• Five point plan
• Reconstitute EXCO
• Strategic review
• Improve transparency
• Deliver on merger
• Customer service focus

• Chairmans 10 key issues
• CEOs objectives
• Nedcor board objectives

• SVB Workshops
• Talk-to-Tom

Priorities group strategy
Strategic Recovery Turnaround Office

e.g. Retail mass market strategy, Corporate
transactional banking initiatives
Restore the bank Build for the future
10
Tier 1 2 2004 initiatives
Tier 1 Fix what is broken
Tier 2 Build for the future

• Management Information
• Capital
• Merger
• Peoples Bank
• 2004 Budget Delivery
• Base
• Gap Delivery
• Risk Management and Governance
• Incentives, staff morale, culture and values
• Effective executive team

• Customer Satisfaction/ Retention
• Bank Image
• Financial Services Charter
• Strategic Plan, including alignment
• Bancassurance

11
Tier 1 Dashboard
Management Information
Capital
Owner Stage Due date/ Status Date compl. RS
Complete May 04 ? MB Complete May
04 ? DM In Progress Mar 05 ? MB Benefit
Tracking Dec 04 ? MB Benefit Tracking Dec
04 ? PW Benefit Tracking May 04
? PW Implementation Dec 04 ? PW Complete Sep
04 ? RS Complete Sep 04
? PW Complete Q4 2004 ? PW Development 2005 ?
PW Complete Dec 04 ? PW Complete Sept 04
?
Owner Stage Due date/ Status Date compl. MB
Benefit Tracking March 04 ?
MB Benefit Tracking March 04 ? MB In
progress Dec 04 ? MB Complete Dec 04 ?
MB Complete July 04 ? MB Complete Dec 04
? MB Design Feb 05 ? PW Benefit
Tracking July 04 ? MB Development Dec
2004 ? MB In progress Dec 2004 ?

• Rights issue
• Capital not to drop below 10 (Jan May 2004)
• Sale of non-core assets businesses
• Management of foreign capital and hedges
• Tier 1 Capital to be 7.5 by Dec 2004

• Baseline clean-up completed timeously and new
  accounting policies implemented
• ALM
• One version of the truth
• Fast Close
• Board/ management pack redesign
• Stable accurate financial data
• Financial processing architecture/ data warehouse
  
• DI returns (Interim)
• ROE RaRoC analysis (Process)
• IAS

Risk Management Governance

• Banker not punter policy
• Internal controls
• Re-examine Governance structures
• Group Structure rationalisation
• Key Issues log
• Basel II
• FICA Dec compliance
• FIAS compliance

• Stages
• New Idea
• Scoping/Concept formulation
• Specs/Designs/Definition
• Development/In progress
• Implementation
• Benefit tracking

? Complete ? Well on track ? Still concerning
12
Future Nedbank scenarios
13
2004 Internal reputation survey
Distinctive
Superior
Common
Not effective
Nedcor

• SA Inc

Direction
Direction
56
40
Coordin
-
Coordin
Account
Account
-
ation

ation

ability
control
ability
control
49
70
64
37
External
External
Innovation
Leadership
Innovation
Leadership
orientation
orientation
60
68
37
56
65
43
Capability
Motivation
Capability
Motivation
79
56
63
39
Environ
-
Environ
-
ment

ment

values
values
50
27
14
2004 Internal reputation survey
I am committed to deep green . . .
.. I lack trust, confidence and fear for my job
Lack of courage
I deeply care about Nedcors future (82)

• Courage to speak the truth (27)
• OK to be yourself (39)
• People openly admit to failures (9)

• I will do whatever it takes to get Nedcor back
  to the top

Silo mindset/ lack of teamwork

• High degree of trust between clusters (13)
• People care for each other (27)
• Nedcor has great team-players (36)

I am committed to Nedcor for the long-haul (72)

• I know that when its all said and done, I will
  still be here

• Look to authority figures for routine decisions
  (58)
• Better to go along rather than undermine
  authority (48)
• Too many processes (67)

Risk averseness/ bureaucracy

• We have the best people in the industry
• If you compare one-to-one this company has
  better talent than any of the other three

We have the institutional capabilities to achieve
its strategies (78)

• Do not need to play political games to get ahead
  (19)
• Other departments prevent us from operating
  effectively (47)

Politics/blame culture
Feeling of a victim

• We get all the pain while they make mistakes
• We are underpaid
• Only time they talk to us is if there is bad
  news or they want something

15
Dagwood
16
2004 Key Risk Areas
Complete balance sheet clean-up ?
New exec team in place working together ?
Recapitalise the group R5bn rights issue ?
Reduce forex exposure risk ?
Reduce interest rate risk - Hedging new fixed rate deposits - Hedging of R6bn subordinated debt - Roll off of unhedged deposits (R24bn end 2003) ?
Migration of BoE business banking property finance clients ?
Swisscard project delivered now operating ?
Staff morale (2400 retrenchments in 2004/5)
Execution risk
Market share growth
17
Key financial indicators
For the year ended 2005 2004 2003
Headline earnings Rm 3 167 1 743 55
Headline EPS cents 797 483 19
ROE 15,5 11,1 0,4
Margin 3,55 3,19 3,13
Efficiency ratio 64,8 71,8 72,5
Group capital adequacy 12,9 12,1 10,1
18
Highlights switch of focus

• Internal focus
• Set the base
• Reduced the risk
• Increased accountability
• Clarified vision
• Set strategy
• Fixed the structure
• Delivered the merger
• Improved measurement

• More external focus
• Client service
• Product innovation
• Systems enhancements
• Channel improvements
• Market share
• Transformation FSC
• Brand repositioning
• Sustainability

2006
2004
2005
19
The next phase
?
2004
2005
2006
2003
20
FROM TO
1 Survival Business viability / sustainability
2 A reactive short term focus A compelling forward looking picture stratgey that inspires people to do be their best
3 A racially segmented economy Deracialising the economy
4 An elitist bank A representative truly SA bank
5 An independent business A tighter integration with the OM Group
6 An insular organisation Contributing to the common good of society
7 A fragmented organisation (Boe, NIB, Nedbank) Belonging to one bank
8 Silos Cluster focus Teamwork a Nedbank First mindset
9 Forced symmetry Recognising appreciating cluster / division difference uniqueness
10 Centralised bureaucracy Regional / front-line flexibility empowerment
11 A revolving door institution Attracting retaining black talent
12 White dominance Black empowerment
13 Male Dominance Gender empowerment
14 A mindset focusing IT / Numbers / IQ A mindset including humanism / heart / EQ/ whole person
15 A risk averse, bureaucratic mediocrity A high performance accountable innovative culture
16 Disgrace, shame, inferioty, embassassment, bad mouthing Brand pride, self esteem, respect, loyalty reputation
17 Prejudice preference Treating people equally
18 A fear driven, inconsistent leadership management style A values based, consistent empowering leadership and management style
19 Non-aligned action Purposeful aligned result driven execution
20 Inwardly focused on bureaucratic systems processes Focusing on client centricity
21
TO
1 1 Business viability / sustainability
2 2 A compelling forward looking picture stratgey that inspires people to do be their best
3 3 Deracialising the economy
4 4 A representative truly SA bank
5 5 A tighter integration with the OM Group
6 6 Contributing to the common good of society
7 7 Belonging to one bank
8 8 Teamwork a Nedbank First mindset
9 9 Recognising appreciating cluster / division difference uniqueness
10 10 Regional / front-line flexibility empowerment
11 11 Attracts retains black talent
12 12 Black empowerment
13 13 Gender empowerment
14 14 A mindset including humanism / heart / EQ/ whole person
15 15 A high performance accountable innovative culture
16 16 Brand pride, self esteem, respect, loyalty reputation
17 17 Treating people equally
18 18 A values based, consistent empowering leadership and management style
19 19 Purposeful aligned result driven execution
20 20 Focusing on client centricity
THEMES
Strategy
Strategic Imperatives
Good Social Citizen
Organisation Design
Transformation / Diversity
Leadership, Behaviour Values
Continued focus on execution
22
Prioritisation
23
Organisational Culture, Values Environment
Source Richard Barrett - Liberating the
Corporate Soul Based on research of over 500
companies in 35 countries since 1997
24
Building a great place to work
I KNOW WHAT
I KNOW WHY
I KNOW HOW
I AM EMPOWERED

• Job profiling
• Job description

• Commonly understood group strategy
• BSC aligned to strategy

• Training
• Mentoring

• Tools
• Equipment
• Authority

PREPARATION
I HAVE A CAREER PLAN
I AM EQUITABLY REWARDED
I AM PERFOMANCE MANAGED
I KNOW MY MEASURES

• Feedback
• Appraisals

• Remuneration
• Recognition

• Career Choices Model
• Direction
• Options
• Growth

• Key performance indicators / areas / measures

PERFORMANCE
25
The Nedbank Brand
Proposition Deeper understanding of you and your
banking needs
At Nedbank we believe that appropriate financial
advice and products delivered with deeper
understanding have the power to make a difference
Make things happen with Nedbank
26
Morale improved
Source Nedbank Group 2006 employee survey
27
Nedbank Group Comparative
28
Nedbank Group Comparative Current Culture
Values
2006
2005
1. cost-consciousness 2. accountability 3.
client-driven 4. client satisfaction 5. results
orientation 6. performance driven 7. profit
8. bureaucracy (L) 9. teamwork 10. community
involvement
1. cost-consciousness 2. profit 3.
accountability 4. community involvement 5.
client-driven 6. process-driven 7. bureaucracy
(L) 8. results orientation 9. client
satisfaction 10. silo mentality (L)

New Values
29
The Current Culture Positive Winners
2005
2006
Cost consciousness Profit Accountability Community
involvement Client-driven Process-driven Bureaucr
acy Results orientation Client satisfaction Silo
mentality Performance-driven Hierarchy Control Bei
ng the best Achievement Empire building Employee
recognition Continuous improvement Productivity Co
nfusion
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Cost consciousness Accountability Client-driven Cl
ient satisfaction Results orientation Performance-
driven Profit Bureaucracy Teamwork Community
involvement Employee recognition Achievement Silo
mentality Process-driven Continuous
improvement Productivity Being the
best Delivery Control Financial stability
30
The Current Culture Reduction in Limiting Values

2005
2006
Cost consciousness Profit Accountability Community
involvement Client-driven Process-driven Bureaucr
acy Results orientation Client satisfaction Silo
mentality Performance-driven Hierarchy Control Bei
ng the best Achievement Empire building Employee
recognition Continuous improvement Productivity Co
nfusion
Cost consciousness Accountability Client-driven Cl
ient satisfaction Results orientation Performance-
driven Profit Bureaucracy Teamwork Community
involvement Employee recognition Achievement Silo
mentality Process-driven Continuous
improvement Productivity Being the
best Delivery Control Financial stability
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
31
Nedbank Group Comparative Entropy
2005
2006


CTS 24 - 19 - 57
CTS 26 - 21 - 53
Entropy 19
Entropy 25
32
Next Steps Great People need great managers

• People join organisations because of public
  image, charasmatic leaders, career prospects and
  paypeople leave because of their immediate
  managers, not the companies they work for

Source Marcus Buckingham Curt Coffman
First break all the rules Based on research
conducted with 80,000 managers across different
industries
33
Key financial indicators
For the year ended change 2006 2005
Headline earnings (Rm) 40,0 4 435 3 167
Headline EPS (cents) 39,3 1 110 797
ROE () 18,6 15,5
Margin () 3,92 3,55
Efficiency ratio () 58,2 64,8
Group capital adequacy () 11,8 12,9
34
Campbell Belman survey
35
Relative performance in 2005
36
There is no miracle moment. Small incremental
wins in one common direction will restore
Nedbank Group to a highly rated respected
financial institution.