ASX Announcement - National Australia Bank Announces Strategic Initiatives for Long-Term Growth - 11 May 2005

National Australia Bank Chief Executive, John Stewart, announced today key elements of the Group strategy to rebuild and transform the company and provide long term sustainable growth.

"We have completed the first year of a two to three year turnaround, and over the next six months we will continue the work of stabilising the business," Mr Stewart said.

"Transforming the National will be a challenge, but we are pursuing a balanced strategy that addresses the priority areas we identified last year of achieving better business efficiencies, restoring revenue growth, cultural change, and improving compliance and risk management."

Mr Stewart said good progress had been made across each of the four areas.

Business efficiency

Over the past 12 months, Mr Stewart said the National had been "tackling inefficiency" through a number of programs. 

"We are simplifying our business, reducing duplication through better integration across the Group," he said. "In Australia, we are integrating wealth management and retail and corporate banking, and their associated systems and processes to make it easier to do business with us and allow us to be more nimble.

"This integration gave us an opportunity to remove subsequent duplication in back office functions and reduce the size of the Corporate Centre in Australia as we devolve relevant functions to the Australian region.  This will result in a more efficient regional business and leaner Corporate Centre," he said.  (The impact of this is outlined in the 'Outcomes' section at the end of this announcement.)

"Institutional Markets & Services (IMS) has also reviewed its operating model and is now transitioning to a more efficient, higher equity return business model. As a result it will rationalise its activities in Asia and release capital currently invested in assets generating low returns.  Its focus will be on markets where the Group can build long-term sustainable growth.

"The IMS changes reflect the need for us to be more competitive while reducing inefficiencies.  As a result, we have readjusted our IMS Asia network, focusing on retaining a 'regional hub' in Hong Kong to support the wider Group activities and initiatives in Asia and to serve global clients. 

"Subject to the relevant approvals, IMS offices in Singapore, Korea and Malaysia will be closed and our Tokyo-based securities company will also be closed. In addition, we will be re?focusing our corporate lending activities in Asia on those clients who have, or potentially have, activities or investments in our core banking markets," he said.

Mr Stewart said the National remains committed to the Asia region. 

"These changes represent a realignment of our business strategy and re-basing of the business from which we can build a greater presence and one which represents a total Group perspective.  We remain committed to the Asia region," he said.

The retail businesses in Singapore, Hong Kong and Tokyo will remain, and the National will continue to deliver a high level of service to customers in these locations.

Restoring revenue

Mr Stewart said the National had introduced several new products and processes across each of the regions to make it easier and more rewarding for customers to do business with us.

"In Australia, we have listened to our customers and launched a range of new products in response to their needs, including new low-fee deposit accounts, business and housing low documentation loans and new credit card products, including the Visa mini card," he said. "We have launched 'on the spot' decisions for business loans, restoring credit settings and extending greater credit authority to our bankers.

"In the UK, our growth program has included the opening of 15 financial solutions centres in the South East of England in the first half and three new centres since then, with a total of 30 to open by the end of the year. In the North of England and Scotland markets there are plans for approximately 40 more financial solutions centres and investment in 50 flagship branches.

"The UK growth program has included a review of its distribution network, which will result in significant investment in customer facing areas. 

"This will include the continued expansion into the mortgage intermediary market, revitalisation of call centres, telephone banking and internet banking platforms, an expansion and technology upgrade of its ATM network, and a re-alignment of the branch network to reflect changing customer usage which will include the establishment of 50 "flagship" branches in key centres.  Clydesdale Bank customers are also able to access their accounts at any of the UK's 16,000 Post Offices

"It has also resulted in decisions to close approximately 60 Clydesdale and 40 Yorkshire Bank branches during the next 18 months.  This is in response to the changing needs of our customers, which has meant some branches are no longer viable. 

"Our research has shown that in any one month 75% of our customers do not use a branch at all, and 11% use a branch only once.  This is about providing our customers with the appropriate network for their needs," Mr Stewart said.

"In New Zealand, a range of customer service initiatives led to the Bank of New Zealand being rated number one of all major banks for branch service in 2004."

Mr Stewart said detailed business briefings on Australia and IMS strategies would be held later in the year (including updates on restructuring activity and investment spend).

Cultural change

Mr Stewart said the National's cultural change program was well underway.

"The top levels of the leadership at the National have been refreshed and the new team is committed to rebuilding the National and creating sustainable growth in shareholder value with a balanced approach to all our stakeholders.

"As we have restructured we have recruited from a variety of sources and moved talent internally to increase diversity of thinking and bring in new capability in areas such as risk, distribution, treasury and audit," he said.

"We have held leadership working sessions with our key leaders across the regions to engage and involve them in their role in leading the Corporate Principles and driving the strategic agenda.

"The Principles have been included within our performance management system to ensure our people are rewarded on both performance and behaviours.

"A range of 'proof points' are also being developed by the businesses to quantitatively measure our progress against these Principles and ensure they are aligned to the activities, responsibilities and operations of each area."

Compliance and risk management

Mr Stewart said the National's compliance and risk program has been a priority across the whole Group, with significant progress made.

"Our compliance program is also progressing," he said. "We have tightened our risk management and compliance framework, and are continuing to work closely with our regulators to ensure we have sustainable compliance and risk improvements.

"Our foreign currency options trading desk reopened two days ago and we are well advanced on both the APRA remedial actions program and ASIC enforceable undertakings.

"Thirty-one of the 81 actions in the APRA remedial actions program were completed to APRA's satisfaction by March 31 2005, with a further 40 submitted to APRA for closure.

"Significant improvements in the risk management and compliance framework have been implemented across all the regions although there are still areas needing work. A new Chief Risk Officer in the Group, and Chief Risk Officers for each of the regions and IMS have been appointed, reflecting a greater focus on risk management.

"Formal risk and compliance reporting and escalation processes have also been established to improve monitoring and control across the Group."
 
Outcomes

To support these initiatives, a provision of $403 million before tax ($282 million after tax) was booked in the National's first half results for 2005 (see separate release today).

The March half provision covers approximately 2,700 redundancies, including 1,000 in Australia and 1,700 that were previously announced in the United Kingdom.

The first half provision is expected to result in annualised savings of $375 million when completed.

In the second half, a further provision of up to $400 million will be booked.  This relates to a further 1,500 redundancies, property rationalisation and other restructuring costs.

This will include 1,000 redundancies in the Australian business, 400 redundancies in the Institutional Markets and Services business and 100 redundancies in other areas including the corporate centre which is being progressively down-sized through the wind-down of group-wide projects, devolution of functions to the region and other efficiencies.

As a result of these changes, there will be approximately 2,000 redundancies in Australia over the next two years, the majority of which will be in back office, non-customer-facing roles. 

When the redundancies in the United Kingdom and Institutional Markets & Services are included, a total of approximately 4,200 roles are expected to become redundant over the next 24 months globally across the National.

However, we expect to at least maintain our current level of investment of about $800 million a year to build the business over the next 2 to 3 years. Over time, an increasing proportion of this investment will be focused on customer and revenue generating initiatives.

For further information:

This announcement contains certain "forward-looking statements" within the meaning of Section 21E of the US Securities Exchange Act of 1934 and the US Private Securities Litigation Reform Act of 1995.  The words "anticipate", "believe", "expect", "project", "estimate", "intend", "should", "could", "may", "target", "plan" and other similar expressions are intended to identify forward-looking statements.  Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements.  Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the Group, that may cause actual results to differ materially from those expressed or implied in such statements.  There can be no assurance that actual outcomes will not differ materially from these statements.  For further information relating to the identification of forward-looking statements and important factors that could cause actual results to differ materially from those projected in such statements, see "Presentation of Information - Forward-Looking Statements" and "Risk Factors" in the Group's Annual Report on Form 20-F filed with the US Securities & Exchange Commission.