KEY POINTS:
John Stewart says that when he took over as chief executive of Bank of New Zealand's parent, National Australia Bank, in 2004 it was like "Beirut on a bad day."
The bank was dealing with a fallout from huge losses suffered as a result of big unauthorised foreign exchange transactions, which was followed by a messy boardroom dispute.
"The bombs were going off everywhere. I realised there were really deep-seated problems all over the place," he said.
Four years on, in spite of the bank being "completely repaired", Stewart is under heavy fire again, for NAB's first major acquisition on his watch - US rural bank Great Western - at a time when the credit markets have seized up and the US economy teeters on the edge of recession.
Stewart's visit to New Zealand last week for a series of roadshows for BNZ staff was probably a welcome distraction from the flak he's been receiving from media and analysts over the buy and the largely negative market reaction.
The roadshows are part of NAB's ongoing maintenance of its internal culture.
Journalists tend towards cynicism when banks start talking about "culture" and "staff engagement".
However, from the outside it does appear the BNZ's culture has improved in the past few years.
And the bank's customer satisfaction ratings are at all-time high, which appears to bear out a truism Stewart says NAB has: happy staff make happy customers make happy shareholders.
"That's been behind a lot of our success over the last three years. Because as a group we had a not very healthy culture, that's the politest way I can put it.
"It's now getting to quite a good culture but it's not great yet."
So has the improvement fed through into its bottom line?
"We've got the best results in Australia I think by most people's views now."
That may be true, but the bank's share price performance has been less impressive than most of its rivals over the past few years, a golden period for Australian banking.
NAB's shares have been under pressure since the Great Western purchase was announced.
Critics say at a multiple of 19.2 earnings or US$798 million ($1 billion), NAB has paid too much for the South Dakota-based Great Western, especially given the situation in the US.
But Stewart says NAB bought Great Western with its eyes wide open.
"We've been studying the US economy in great detail for about the past year and we'd been predicting it would be slowing long before subprime started."
While NAB had not anticipated the subprime crisis, it had modelled economic risk scenarios based on the crash of a major US industrial sector.
"The domino effect that we predicted was actually what happened with subprime, we just had a different catalyst."
So what is it about Great Western that meant NAB just had to have it?
"The US Midwest is an agricultural economy and people have to eat.
"We want to get a bigger slice of the growth that's going on in agriculture. The world population is growing, especially in Asia, and there's a tipping point in diet: when people start earning more than US$1000 per annum, they start adding protein to their diet - poultry, meat and dairy.
"If you add on the world going green with biofuels, you can see more and more grain being produced, it's a growth commodity area. As a major player internationally in agri-banking, we want Great Western to get us in the US game."
NAB's move into the US is even more curious given its rivals are looking east to China and other emerging Asian markets for growth prospects, if only to stave off the prospect of eventually being swallowed up by one of the big Chinese banks now beginning to flex their muscles internationally.
New ANZ Banking Group chief Mike Smith, when in New Zealand this year, spoke about the likelihood of a Chinese acquisition of one of the four major Australian banks within the next few years, comments which which were seized on in Australia.
Last week, Westpac's David Morgan waded in to the debate, saying the numbers just don't stack up for a Chinese takeout of one of the big four.
"They could both be right," says Stewart.
"David is very logical in the sense that our price to earnings ratios are very high so therefore by the time you pay a takeover premium, and there are no synergies, we do look expensive."
However, Stewart believes that the Chinese would "happily overpay" just to get a strategic stake in the Australian banking sector.
"The Chinese are long-term players. They would take a 20 to 50-year view, as opposed to what the market does, which is a one or three-year view. Do I think it's going to happen in the short term? No I don't."
But "short term" to Stewart means within the next three years.
Meanwhile, Smith has indicated that ANZ will look to establish itself as a significant player in Asia, moving there before it moves on Australia.
Stewart, on the other hand is not so keen to rush in.
"We haven't gone out and bought 20 per cent stakes in Asian banks because ... if you own more than 15 per cent of a bank and it goes wrong, the regulator will normally ask you to step in. So I know I sound like a typical Scottish banker here but I have a problem where I get 100 per cent of the downside but only 20 per cent of the upside, it doesn't seem like a good risk reward.
"Now if we could get control of banks, then we would be interested."
What he is far more interested in is the opportunities in wealth management thrown up by Asia's economic rise and the increasing affluence of its population.
Smith and Morgan's recent comments about China have served to rekindle the debate about the policy which maintains the separation of the four largest banks in Australia by not allowing their merger or acquisition.
While even the arguably more Asian focused new Kevin Rudd-led Government is unlikely to easily give its approval to a Chinese takeover of a major Australian bank, it is likely to come under pressure from the big four themselves to review the Four Pillars policy.
