Interview: John Stewart - Home is where the heart is

WITH banks around the world in crisis and worrying about where their next bailout will come from, John Stewart must have been the only boss of a bank who was wearing a smile last week and looking forward to dinner with his senior management team.

Stewart, chief executive of National Australia Bank, had flown 12,000 miles to speak to key British-based investors before going on to join 300 of his colleagues from its Clydesdale and Yorkshire bank subsidiaries at the Edinburgh International Conference Centre on Tuesday night.

Earlier that day they had been given a glimpse of the future and a slap on the back by Stewart's successor, Cameron Clyne, who takes over in January. With recent results showing the group in better shape than most, those who had travelled from around the UK for the briefing were able to justify a little celebration.

Until he hands over the baton, Stewart is finishing off the job he began five years ago when he was asked to swap London, from where he headed the group's European division, for a new life in Melbourne and the task of rescuing a bank in crisis. "I said 'no' because I didn't want to move," he says, "but I was pressed and said I would come for a year."

It was to prove a longer lasting assignment as the bank's worldwide operations were making headlines for all the wrong reasons. Stewart had been parachuted in to the top job to replace Frank Cicutto after it emerged that four of its foreign currency traders had been involved in unauthorised trades that cost the bank $360m (174m). The traders were jailed and NAB had to console itself with an investor relations award for best crisis management of the year.

"It was definitely the most challenging role I'd had," he concedes during a reflective chat on his adventure Down Under. "I walked into a major foreign exchange crisis that produced three stories a day in every Australian newspaper."

There was speculation that NAB might sell its underperforming Clydesdale and Yorkshire or its two banks in Ireland, Northern and the National Irish, which were losing customers and struggling with ageing systems. In the end it was decided to retain and invest in the Clydesdale and Yorkshire and sell the Irish banks.

The Australian business was in better shape but underperforming and in a move that would have made one of his predecessors – Sir Fred "The Shred" Goodwin – blanch, Stewart cleared out the management, leaving only one of nine senior executives still in their post. "I spent the first year recruiting top class people who attracted other top people. Once you get the right people you can start to fix things," he says.

Stewart, who refers to himself as the company's "leader coach", is proud that the process has identified talent from within, something he calls "bench strength". Clyne is a case in point, someone he hired four years ago and describes as "hugely able". As chief executive of NAB's New Zealand bank, Clyne was made group CEO-designate to prepare him for the role.

The results of the turnaround are plain to see, with the bank performing above its peers and able to withstand the current downturn due to a business model built on firmer foundations.

NAB has not escaped the problem of bad debts, which are rising in Australia as elsewhere, and last week's cash call to raise A$2bn to strengthen the balance sheet surprised analysts. However, it was oversubscribed, prompting the bank to increase the placement to A$3bn and indicating the level of confidence in Australia's biggest bank.

"Every one of our (NAB's] banks is as good, if not better, than its peers and that was not the case five years ago," says Stewart, who regrets what is happening to some of his rivals around the world, not least those in his homeland. "Yes, it is sad that some great banks have got themselves into this condition. People in Australia regard RBS as one of the world's best banks and they were shocked that it needed recapitalisation to such an extent."

Can the Scottish banks and Scotland itself withstand the crisis? "Without doubt. It will have some damage but I don't think it will be lasting damage. Scotland is synonymous with banking so we will rise again."

Governments around the world have shown they would rather bail out their banks than see them fail, he says. Even so, he points out that the US authorities expect one bank to fail every week in the US, though the big failures are probably over.

A concern is that he believes some banks will find it difficult to wean themselves off government support. "One of the problems with the guarantees is it will be difficult to get off the drug. So many banks are now dependent on this support and it will be many years before they can stand on their own again."

Stewart first moved to NAB to head the European business after leaving Barclays where he had become deputy chief executive following its acquisition of Woolwich. He led the latter's conversion from a building society in 1997, the culmination of a career with the society that began 20 years earlier.

In what has been an unblemished career he became a convert to the Japanese business practices of "kaizen" or continuous improvement and other similar management and productivity techniques such as Six Sigma. NAB has taken a lead from Boeing and Toyota which employ such systems to great effect. Stewart says the NAB staff could see what was possible and how much room there was for improvement. "At Boeing we were told how they could put together six million parts – or however many it is – in a matter of a day or so. One of our staff joked that we had trouble getting two statements into one envelope."

Clyne, who runs NAB's New Zealand bank, has "pinched" a number of ideas, particularly from Toyota, including a daily posting of ideas from staff, many of which are immediately implemented. From an average of 20 a day, as many as a third are put into action.

NAB is clearly a regime which sets high standards and its Statement of Corporate Principles spells out exactly what it expects: teamwork and collaboration, fairness and respect, acknowledging mistakes and putting them right. "We do not have room for people who do not live these principles," its statement says. More starkly it states that it does not have room for people "who put their personal agendas ahead of the organisation and its customers".

Despite the bank's transition and its stability in the current crisis, Stewart is not pretending all in the garden is rosy. "We are an international bank so we had some exposure (to sub-prime loans]. Write-offs will be about $0.5bn but the total globally (for all banks] will be in the region of $1.4 trillion. We are not unscathed but not bad.

"I am gloomy about prospects for the world economy so we have set up all of our businesses in a secure manner. I am a keen yachtsman and I see us being hit by a terrible storm. Now is the time to stop worrying about winning the race and keep the boat safe."

He points to NAB's high liquidity and capital reserves. Proceeds from the new share sale will take the tier one capital ratio to about 8%, just above the best of the UK banks. It has a AA rating from the credit rating agencies.

"But this crisis is nowhere near finished. It is going to transfer to the real economy and it is going to be bad. Clearly, I hope it is not deep and long, but right now I would not be banking on that. There will be high unemployment."

He's 59 and after leaving Barclays he had considered stepping back from the rigours of the corporate world. Now he seems fired up for another challenge. Would he be tempted if an offer came from RBS to become chairman? He grins, appearing flattered by the suggestion. "I am always interested in Scotland and I am open-minded about any job, but I haven't spent any time thinking about it."

Posing for photographs in the sixth-floor Clydesdale Plaza office in Edinburgh's Lothian Road, against a backdrop of the afternoon sun setting on the castle, it is evident that Stewart rather likes being back home. He'll be back again in a fortnight to attend a conference and to enjoy a few days holiday.

He once lived in the nearby Gorgie Road and the maroon tie he's wearing betrays his Edinburgh loyalties. "Now," he says, "If you can fix it for me to get that job..."

Somehow, running a troubled bank may be a piece of cake compared with Heart of Midlothian Football Club.