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Why I am avoiding Suncorp and NAB for the next few months


If these weren’t worrying enough times for investors in S&P/ASX 200 (Index:^AXJO) (ASX:XJO) financial institutions, an upheaval in the senior management ranks will certainly give shareholders sometime extra to fret about.

The changing of the guard could herald a period of underperformance, as history has shown before, and three ASX banks couldn’t have chosen a more trying time to announce the departure of key members of their team this week.

The news comes as the financial sector is grappling with regulatory changes following the Banking Royal Commission, a slumping property market, emerging competitive threats from new tech players, growing earnings pressure and a lacklustre economic outlook for the domestic economy.

The good news is that the changeover in some of these banks may be better received than others. To that end, we’ll start with the ugliest.

Why I would avoid these ASX bank shares

The Suncorp Group Ltd (ASX: SUN) share price has fallen every day since the sudden departure of its chief executive Michael Cameron on Monday after nearly four years in the role.

Group chief financial officer Steve Johnson will take the helm as acting CEO until a permanent replacement is appointed.

No reason was given for Mr Cameron’s departure but press reports speculate that he had differences with the board over the splitting of Suncorp’s insurance and banking businesses.

Companies who lose their CEOs tend to underperform, particularly before the companies secure a new permanent replacement. There are a few reasons for this.

The loss of a captain introduces uncertainty over a company’s strategic direction and we all know how much the market dislikes uncertainty – particularly in an industry in a state of flux.

There is also an expectation that whoever takes over will dig out all the skeletons hiding in the proverbial closet. This gives the new chief a clean deck to rebase the business, but the cleanout often causes angst with existing shareholders. This also discourages new investors from buying the stock until the new hire has got his/her feet under the desk.

This is one reason why I am staying away from National Australia Bank Ltd. (ASX: NAB) as it’s yet to find a permanent replacement to ousted Andrew Thorburn, who was a casualty of the Hayne Royal Commission. NAB is the only big bank stock I do not own.

Not all management changes are bad

Meanwhile, Bank of Queensland Limited (ASX: BOQ) yesterday announced the retirement of its chairman Roger Davis, who has held the job since 2008.

He will be replaced by Patrick Allaway and the news hasn’t hurt the BOQ share price as the changeover is considered orderly with Mr Davis staying in the role until after the bank releases its full year results in October.

The replacement of the chairman is also seen to be less contentious as he or she is often not involved in the day-to-day running of the bank.

On that note, today’s news of a changeover in the chair at Bendigo and Adelaide Bank Ltd (ASX: BEN) also didn’t cause the BEN share price any grief.

Robert Johanson will step down as the chairman of the bank at the annual general meeting in October this year after a 13-year run and will be replaced by Jacqueline Hey.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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