NAB writhes as investors howl

By GREG ANSLEY in Canberra



The board of Australia's biggest bank continued the agony of ritual disembowelment yesterday, winding up a special two-day meeting over divisions that threaten to further diminish National Australia's standing among shareholders, investors and customers.

The extraordinary brawl that erupted after PricewaterhouseCoopers' report into the A$360 million ($413 million) lost by rogue foreign options traders has already mired NAB management and now seems likely to continue until a shareholders' meeting next month.

At least for the moment it has also derailed the bank's attempt to recover from the run of disasters that plagued it up to the currency market debacle - including the A$4 billion dropped on its American HomeSide lending operations - and set a new course.

New chief executive John Stewart has been diverted from his main job to help work out some kind of peace within the brawling boardroom, requiring United Kingdom and Ireland boss Ross Pinney to be pulled back to Melbourne to help with management.

Chairman Graham Kraehe's efforts to fill two vacant seats on the board have also been placed in limbo as a result of the schism opened by director Catherine Walter, whose term as chairwoman of the audit committee ended with the PricewaterhouseCoopers report.

And market perceptions that the brawl is paralysing NAB management - relayed to Kraehe by a queue of institutional investors this week - have been reinforced by the quarterly Nielsen Financial Institution Customer Monitor.

The monitor, reported in the Australian Financial Review, found that the continuing row within the board increased the chance of customers switching banks.

Aspect Huntley research director Peter Warnes said the board ructions were unsettling for NAB staff, customers and shareholders.

"If you tried to plan a bigger disaster in terms of a boardroom upheaval you couldn't have done it any better," Warnes said.

"I have never seen a board as polarised as this one and in such a high profile company - you are talking about the country's largest bank and they are behaving like they are directors of a piggy bank."

At the heart of the dispute is Walter, NAB's longest-serving director, who sits on a number of other important boards, including the Australian Stock Exchange, and who is regarded as a tough, no-nonsense operator capable of being particularly hard on management.

Walter objected to the conclusions of the PricewaterhouseCoopers report into the currency scandal, which found there had been inadequate supervision of the foreign currency option traders, failings in risk management systems and lack of financial controls.

Kraehe had described the report as a "full and fair assessment", and last week NAB accepted a series of recommendations from the Australian Prudential Regulatory Authority to repair risk management, financial control, and corporate culture and governance.

Walter did not accept the PricewaterhouseCoopers conclusions and outlined her objections in a letter to Kraehe, later enraging other directors and risking legal retaliation by claiming that board members had tried to influence the report's outcome.

She also accused PricewaterhouseCoopers of a conflict of interest because of work performed for NAB the previous year.

Walter demanded Kraehe's resignation and proposed that the non-executive directors - herself included - be put out to pasture when their present three-year rolling terms expired, without retirement benefits.

Critics inside and outside the board have charged Walter with damaging the bank's process of recovery, and fellow directors threatened to sue over her claims of interference in PricewaterhouseCoopers' investigation.

Walter has since been hammered by evidence showing she was wrong in the level of the payments she quoted in support of her allegations of a conflict of interest in the PricewaterhouseCoopers investigation and - more damning - an independent legal rejection of her claims of directors' interference in the outcome of the report.

A study by law firm Blake Dawson Waldron this week found no evidence of interference.

Kraehe and other directors have moved to dump Walter and the future of all of them at NAB is likely to be decided by shareholders.

* National Australia said yesterday that chief financial officer Richard McKinnon would retire in a couple of months.

McKinnon said he had planned to retire on his 55th birthday next year but decided to step down to allow new chief John Stewart to make a clean management sweep.

National shares ended 0.7 per cent weaker at A$31.