Rebel backlash builds at National Australia Bank

By MICHAEL SMITH

SYDNEY - A push by National Australia Bank to expel a rebel director looked set to backfire yesterday amid growing support for her plan to sack the entire board of the country's biggest bank after a A$252 million ($289 million) foreign-exchange trading scandal.

Catherine Walter, one of the few women to reach the top ranks of corporate Australia, is at the centre of a bitter boardroom feud over the losses from unauthorised trading, which forced the bank's chief executive and chairman to quit.

The gloves came off on Friday when the bank said it would ask shareholders to vote on Walter's future after she refused to resign over her criticism of an investigation into the losses.

Walter hit back on the same day in a three-page statement which said the board was confronting one of the major issues in the bank's history by "an obsessive pursuit of a scapegoat" rather than a major review and restructure of its membership and operations.

"The fundamental issue at stake here is that the board has become obsessed with a distraction - my position - instead of the required review of what went wrong, how it happened and what should be done," she said.

The 51-year-old lawyer lodged a resolution at the weekend calling for the removal of all directors, including herself and the bank's new chairman, Graham Kraehe.

She also released previously undisclosed correspondence between herself and the board which reignited grumbles yesterday about whether Kraehe or other directors had ignored warnings that something was not right at the bank's currency trading desk.

"I am pretty curious as to how you get promoted from a failed committee to run a bank," said Peter Morgan, outspoken fund manager at 452 Capital, referring to Kraehe.

"I am not 100 per cent convinced that the board that's in place is necessarily so much for the better. I hope the board does consider her proposed resolution."

Morgan's comments reflected sentiment from other institutions yesterday, although most fund managers would only talk about the issue off the record.

The bank's lawyers were examining Walter's proposal last night and had not yet decided whether her recommendations would be put to a shareholder vote, a spokesman said.

The boardroom crisis is the latest setback for the bank, which sacked three senior managers and five traders and had new capital and risk controls imposed by regulators after the losses.

"These allegations are extremely damaging to a bank already facing serious distraction and brand vulnerability," JP Morgan analyst Brian Johnson said in a note to clients.

Walter, who was removed as head of the bank's audit committee last month, upset fellow directors who allege she attacked the integrity of a report that criticised her committee's role in the trading losses.

Outside the bank, opinions are divided.

"She must be accountable. She was the second-highest-paid person on the board and she must be made accountable for that," said one of her critics, Australian Shareholders Association chairman John Curry.

Her supporters say Walter has been made a scapegoat and question why other members of her audit committee were not being criticised.

"If she resigns now, it implies that she is accepting blame," Jim Kennedy, who serves on the Australian Stock Exchange board with Walter, has told the Australian Financial Review newspaper.

Walter rose to prominence in the mid-1990s when she was appointed to the National Australia Bank board and later Australian Stock Exchange and chemicals maker Orica.

National Australia Bank shares fell 0.9 per cent to A$31.16 yesterday, slightly underperforming a wider market that fell 0.5 per cent.