NAB owns up to A$10bn worth of mistakes

SYDNEY - National Australia Bank, halfway through a restructuring after a trading scandal and profit warnings in 2004, has admitted to A$10.3 billion ($11.5 billion) in errors in its 2005 annual report.

It said yesterday the mistakes were "classification errors" and did not change earnings for the 2005 financial year, or NAB's financial position.

"I'd be surprised if anyone was sacked," said chief executive John Stewart, who took charge of Australia's biggest bank after the trading fiasco led to top-level resignations.

"What we will do is carry out a full investigation into how it happened. But I think this is probably a simple human error."

NAB said it had overstated the reported level of lending to the real estate construction sector by A$4.1 billion and incorrectly reported A$6.2 billion of overdrafts to entities under instalment loans to individuals and other personal lending.

NAB finance and risk director Michael Ullmer said the core financial systems of the bank, which also owns Bank of New Zealand and Clydesdale and Yorkshire banks in Britain, were "sound and controlled effectively" and the total loan amount in the 2005 annual report was correct.

"It's embarrassing and it does highlight the fact that there seem to be some real operational risk issues in NAB," JP Morgan analyst Brian Johnson said. "Every time they write a loan, they code what sector it should be and they've been misallocating some of those codes."

NAB is cutting 4662 jobs - more than 10 per cent of its workforce - over two years as part of plan designed to improve competitiveness, lift earnings, and lower costs after several profit warnings in 2004 and the foreign-exchange trading scandal.

Ullmer, who also joined NAB after top-level executives and board directors left in 2004, said the bank was taking steps to remove its "significant over-reliance on manual processes".

Stewart said: "As we improve our systems - which we're doing, every month they're getting better - things like this will be automated and it won't happen."

NAB is spending A$2.5 billion on its operations over three years as part of its restructuring. Of that, A$1.8 billion is earmarked for its Australian operations, which accounted for about two-thirds of fiscal 2005 earnings.

NAB sold its Irish banks last year and sold its Hong Kong and Indonesian MLC life businesses last week to AXA Asia Pacific Holdings for A$575 million.

- REUTERS