Mike Brown was certainly not a shoo-in as CEO. The FM has learnt that the board was keen on appointing a black candidate, who had more degrees than Brown and local and international banking experience.
Current executive committee members Graham Dempster, Ingrid Johnson and Brian Kennedy were on the short list. So were Rob Shuter, the head of Nedbank retail who resigned after he was not appointed, and Mfundo Nkuhlu, managing executive of the corporate division, who was "pipped at the post".
There were also three "strong" outside candidates. In the end, Brown, says chairman Reuel Khoza, proved to be " head and shoulders above the rest". It helped that Brown came from BoE, Nedbank's investment arm.
Mike Brown
At 43, he may be young for a bank CEO, but he is "not as green as he might look". And he is more or less the same age as Standard Bank's Jacko Maree and Absa former CEO Steve Booysen when they were appointed.
Brown has 20 years' banking experience, inluding five years as a financial director. Says Khoza: "FDs do all the work and CEOs provide leadership."
There's no question about Brown's number-crunching ability. The question is whether he can match Boardman's much-vaunted leadership style. Perhaps Brown's recent experience at Harvard in the US, where he did an advanced management course during the credit crisis, will help him make the shift from a number-crunching guy to a leader.
But a former colleague at BoE and current competitor from African Bank, Dave Woollam, says Brown will be tougher than Boardman.
Reuel Khoza - Great confidence
"I see Brown as a war time leader, like Churchill, who thrives on making tough calls." Boardman, on the other hand, is a "peace time leader" like Barack Obama, he says. This confounds criticism that Brown is a lightweight compared with the other SA bank CEOs.Brown is pragmatic on the competition. He says it depends on how being number one is measured (see table on page 32 - Nedbank is behind its peers by many measures). But Brown says: "It is not about size. We aspire to be the most highly rated and respected bank."
When Nedbank bought BoE in 2002, it became the largest bank by assets. It had intentions of also becoming the number one investment bank in SA, but has fallen short on many expectations. And with Old Mutual as a parent, Nedbank hasn't really flourished as much as an ownership structure where the bank is the dominant party. Standard Bank/Liberty is a case in point, where it could be argued many synergies have been harnessed effectively. The jury is still out on whether Old Mutual is good for Nedbank.
Brown is very aware of where Nedbank is falling short. There are gaps to close, but Brown is keen to drive existing strengths, like commercial property and wholesale banking, and gradually grow the weaker areas, like non interest revenue, the retail base and transactional business.
His immediate challenges involve launching new products in bancassurance (the sale of life, pension and investment products through the branch network of a bank ), new investment products, savings products and assurance products in the property arena.
Nedbank needs to integrate the bancassurance business tightly with its sales offerings. Brown realises this and plans to launch new products such as warranty cover, which offers protection against accidental damage and other costs.
Nedbank has positioned itself in the up-market segment and Brown says he will keep a 65% wholesale mix (which relates to high-value transactions) as opposed to retail - though he does want to grow retail, which experienced a headline loss of R156m. Even analysts are surprised by the unexpected growth in the wholesale side.
The business banking cluster has returned headline earnings of just more than R1bn, while Nedbank Capital achieved R1,4bn. Commercial and industrial property is thus very much on his radar. But it is surprising that the home loan business will not be driven as hard even though the recession is over. The tough lessons learnt from the easy credit days of 2006/2007 have clearly hit home for most banks and lending at 110% of value will not happen again in a rush. The renewed focus on property risk is seen as a positive sign by the market.
The other surprise was that the bank came out of the bad debt cycle better than expected.
Brown has a daunting operational road ahead as impairments (provisional write-offs) grew at over 30% (R6,6bn in 2009), defaulted advances increased by 56% on 2008, slow consumer spending remains a lurking problem and tougher liquidity regulations for all banks and ancillary businesses loom large.
The concern is that higher liquidity requirements crimp margins, especially in areas like mortgages, as more cash will need to be on hand than lent out.
But Woollam believes in Brown's ability to meet these challenges. "Brown has incredible determination. He can get things done." He may not yet be an inspirational leader, coming across as conservative and pragmatic, but Woollam says Brown will develop this aspect with time.
As a step towards showing his leadership skills, he has appointed an executive team (see list on page 31) with a blend of diverse experience.
He knows all too well about surrounding oneself with the right people. He was brought in by Boardman as the CFO in June 2004, when Boardman was working hard to get the bank back into a healthy state after a near run on the institution. He has been groomed for the hot seat for almost a year.
Brown, however, has already come under criticism from, among others, embattled ANC Youth League leader Julius Malema, over decisions regarding his team. It related to the appointment of Raisibe Morathi as chief financial officer earlier in the year and the appointment of Dempster as chief operating officer (COO) and Morathi's superior. The issue of contention was that Morathi was not reporting to the CEO but to Dempster, a man with 29 years' experience and the previous MD of Nedbank Corporate.
But Morathi has come out in defence of her new boss - and Brown is quick to point out his is not the only bank with a COO role on its executive and the CFO reporting to the COO. FirstRand is the other bank. Morathi tells the FM it has been important to have someone like Dempster to bounce ideas off.
Cadiz analyst Rob Nagel says the key for Brown will be to shift away from getting "stuck in the numbers" and concentrate on Nedbank's competitive weaknesses. Another analyst says the bank needs to get more productive and get more value out of current offerings.
It may be a case of one chartered accountant for another and one former BoE executive for another, but will Brown hold his own when serious complexities emerge?
Chairman Khoza clearly has confidence in Brown, adding that he is a "genuine delegator" Brown has also shown that he can handle crises. He lived through the small loan crisis of 2002 when Saambou went under and BoE was saved (Absa's Unifer got into trouble earlier).
Governments have learnt that banks are systemically important and a run on one cascades through the system as the market tests the next support level.
This scenario played out in the recent global crisis, to which SA banks proved largely immune. Brown says local banks have had to weather cyclical stress caused by bad debts, and that though this has reduced earnings in the local sector, all banks are still solidly profitable. But he says bankers will be watching the new Basel global regulatory standards, which could eat into excess capital.
At Nedbank, a key area needing improvement is non interest revenue (the income banks generate from sources other than interest), where the bank lags behind its peers. Admittedly, this area of the business is growing - the 2009 results last week showed some improvement of 11%, to R11,9bn - but Brown says it is now about building fees and commissions and growing the client base instead of margins. He is looking for more transactional business.
Brown may not be ready to tap into his balance sheet just yet, but says there are opportunities for acquisitions.
Nedbank is buying the remaining 49% in Imperial Bank it does not own, and it recently bought the bancassurance joint ventures from Old Mutual. These two deals are worth more than R3bn. The Imperial deal was for cash, not shares, indicating a willingness to use the capital component of the balance sheet where appropriate.
Old Mutual holds a majority stake in Nedbank and Brown sees benefits from the synergy. This was not always the case, with Old Mutual regretting giving former Nedbank CEO Richard Laubscher too much room to manoeuvre. Brown does not foresee a sale, but is not too concerned if a sale were to happen as it might entail opportunities through new partners. "We've made money together," he notes, mentioning R500m in synergies largely from bancassurance and procurement.
His close working relationship with Old Mutual MD Julian Roberts goes back to when they were both financial directors of the respective companies in 2004. Another bank analyst says the relationship has not been a big lever driving either business, and nor does he expect it to be.
But Brown remains pragmatic about the potential in Africa, saying the key is to find the pools of economic profit in financial services sectors, with about 75% of these in SA and the Southern African Development Community (SADC). "It's the main game in town." Brown believes the other 25% of the economic profit pools outside SA and the SADC do offer potentially higher growth rates and returns, but at higher risk.
It is no surprise then that they will be looking to harness their alliance with pan-African company Ecobank Transnational as they have jointly expressed interest in the process around Nigeria's 10 failed banks. FirstRand and Standard Bank, which already has a presence in 18 African countries, have also expressed interest.
It is up to Brown to reap rewards from Nedbank's alliance with Ecobank, which operates in West, East and Central Africa. While Nedbank will continue to focus on Southern Africa, the partnership will allow it to expand its client offerings to other regions.
WHAT IT MEANS
 Challenging operational road ahead
Brown will be tougher
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The Nedbank Golf Challenge has been a gripping African event, luring top golfers to SA for over 20 years. However, Brown has the rare distinction of being the first Nedbank CEO who actually plays golf - Laubscher and Boardman did not.
Brown seems intent on putting his own footprint on the banking landscape through a pragmatic, but not risk less, strategy that moves beyond his far duller days as an accountant and auditor.
One staff member says Brown has an open door policy, and is affable and engaging - not at all dictatorial.
It is still early days, but Brown is probably the type who will send flowers to the wives of businessmen who are being kept busy after hours. He is a family man and, like Boardman, always finds time for his wife and three children. He is reading historian Niall Ferguson's Ascent of Money.
Nedbank's own ascent may be nascent, but Brown will be determined to ensure his bank succeeds.
Ranking the Analysts 2009
