NAB has taken a record write down on its Florida-based Homeside business and our correspondent Barry Banker is looking for a bit more board, management and regulator accountability.
At first blush, this looked a wise move on Francis’s part. Let’s upgrade that to ‘looked a very wise move on Frank’s part’. For a start, Florida is a long, long way from Francis’s office in the lush green carpeted environs of Level 35 at 500 Bourke Street. For a finish, Florida is home to lots of retirement villages, nicely gated and securitised and just ideal to keep out inquisitive board members and puzzled shareholders who could, if the mood took them, quite spoil the retirement of an ex-head of the Bank.
But your not-so-sychophantic Bank correspondent had it all wrong. Frank’s real mission was to reassure the HomeSide folk, shaken after an “input error”, that thankfully according to Frank was ‘only’ $400 million of the $4 billion of shareholders’ funds the Bank’s Board and its senior management have destroyed.
As Frank declared on Friday to an incredulous Nine Network Business Sunday anchor Michael Pascoe before heading off to Florida “Again it is an input error and that is what it is, an input error, and one should not expand beyond that.”
What was that? Input error? Yep, that’s all it was folks.
Frank had earlier boasted on last Tuesday’s ABC 7.30 Report : “I still feel confident, very confident, that once we get this behind us, this organisation will move onto bigger and better things.”
Bracing stuff Frank, bracing stuff. Possibly even good enough to qualify for the 2001 Big Swinging Richard Award.
So Francis was feeling confident, very confident, as he headed off for the northern “fall” as they say in the US, “unequivocally” supported by the Bank’s freshly minted “permanent” chairman Charles ‘Chuck’ Allen. Absolutely.
And talking about bracing, Frank was certainly not likely to have to brace himself against the first chill of fall. He was positively basking, basking in the glow of lavishly gushing commendations from corporate cop, none other than ASIC’s David Knott who The Australian’s John Breusch and Morgan Mellish reported last Wednesday as saying:
“I applaud the action taken by the NAB Board , 05..from the facts known to me, they have set a new high-water benchmark for disclosure practice which is a very good example for all listed companies , 05.the fact that the NAB directors worked all over the weekend to achieve that is a tribute to them.”
Knott’s adoption of the mantle of ra ra leader of the Bank cheer squad at “the high-water benchmark” might want to be reviewed in the harsh new light of day which now seems certain to fall on the Bank, and Knott. “Just what were the facts known to you, Mr Knott?” “Well Your Honour, , 05, 05”.
Now Chairman Charles earlier in the week had succeeded Mark Rayner. Readers of Crikey will recall that Rayner was on ‘leave of absence’, bravely fighting the inferno at Pasminco that had devoured most of the shareholders’ funds and which, your correspondent recalls, involved a mere $867 million hedging loss. (Knott has been strangely silent on Passie, but not forgotton, or forgiven one imagines by the Passie shareholders ASIC has so pointedly ignored. Does ASIC’s silence on NAB, Passie, Ansett, HIH (until they all augered in) mean disapproval, disregard, just too hard or ye gods, even a tribute. When the Melbourne chaps are involved, there is always full and timely disclosure and nothing at all to investigate. Right?)
But back to Chuck Allen who is a senior member of the Bank’s board audit committee and as a director oversaw Homeside’s sickening $1.4 billion of hedging losses in 1999 and another $480 million of hedging losses in 2000. In the hedging loss promotion stakes at least, Allen clearly had the loss numbers to edge out Rayner for the chairmanship of the Bank.
But what really shook your correspondent was Frank’s declaration on last Tuesday’s ABC 7.30 Report, that:
“I’m managing this issue personally myself (Ed. Is this a Freudian slip by Frank, unless of course he is personally really someone else at other times or maybe, understandably, just wishes he was now) on a minute by minute basis” which was preceded by ‘interim chairman’ Chuck’s comment last Monday that the Bank’s Board “unequivocally” supported not only Frank, but “the senior management of the NAB”.
Now this is the best news that has come out of the NAB for some time. Why is that you ask? Well, since Chuck and his six other fellow directors have now aligned themselves with “the senior management of the NAB”, including Francis who is “managing this issue personally myself on a minute by minute basis” (but not over the last three years?), they will all have to now share the responsibility and accountability for the fine old mess they have got the Bank into.
That means they will all resign when the “review” on the HomeSide triumph comes in, and the shareholders can get some new, hopefully responsible and accountable directors and senior management, right?
Not so fast Sally, not so fast.
Cicutto gave a good description of the NAB chain of command in his Michael Pascoe Business Sunday interview.
Pascoe: Now that sounds like someone hit the wrong key accidentally. There is more to it than that isn’t there?
Cicutto: Again their review will bring forward all the information surrounding the input error and the processes within Homeside, the processes from Homeside into the corporate centre, the processes within the corporate centre up through me to the board. And one should not pre judge the outcome of that review.
Pascoe: And who is doing the review?
Cicutto: It will be a number of independent people including outside folk. We are in the course of negotiating the terms of the review with them at the moment.
Pascoe: And that review is to the board or to the CEO?
Cicutto: To the board.
Pascoe did a good job of trying to get Francis to come clean, but what is one to make of a CEO to say nothing of his Board who trots out and “unequivocally” supports such tripe? Not much, is one answer that comes to mind.
Whilst Francis is basking in Florida, Chairman Allen might want to answer, and Knott’s ASIC (just forget the ASX) and most particularly APRA (of HIH fame and now Ansett fame), could and should be asking Allen the following questions, like:
Who are these “outside folk’ Cicutto is talking about?
How can “a number of independent people including outside folk” be independent if they are not “folk” from outside the Bank, who are these people, who selected them and who approved their appointment and on what terms?
Why should “a number of independent people including outside folk” do any better than the Bank’s auditors KPMG, and where have they been for the last few years (readers need look no further than page 90, paragraph 19, Mortgage Servicing Rights, of the Bank’s Notes to the 2000 Financial Statements, which is the at a level of uninformative gobbledegook that only the Bank directors (and dare one say CEO Francis and their senior management) could understand, presumably, but maybe not?
Where were the Bank’s internal auditors, and what did the internal audit reports over the last few years say to the Bank’s Board Audit Committee?
What if any action did Allen and the Bank’s audit committee know and do and when did they do or not know it or not?
What is the Bank’s current capital position? Cicutto told Michael Pascoe on Business Sunday:
“Well we have a history of maintaining a strong capital base and that will continue. What I’m saying is that capital management is an open issue. Our bad debts today are within our plan expectations and we expect to come within our plan expectations at the year end.”
When were these capital “plan expectations at year end hatched” and did they include the NAB’s exposure to Ansett (?????), HIH (????), Pasminco (now there’s a curly one, presuming that Rayner kept his Board fully informed about Passies condition over the last year or more), to say nothing of the “misconceived and will fail” $50 billion AUSMAQ litigation claim that Francis ( a personal defendant) has so far burnt $60 million plus of shareholders’ capital on defending and which is subject to, albeit disputed, an unlimited guarantee by the NAB? In all these circumstances, if it all comes to tears, Cicutto may later be able to say that he was keeping the market fully informed when he told Pascoe “what I’m saying is that capital management is an open issue”. What exactly does that mean, Frank? Open as in there’s a hole in the bucket, or what? How do you feel about “open issue , 05. capital management” by the largest deposit taking institution in Australia, Les Phelps at APRA (Yes you, Les, you may ultimately be wearing this, so pay attention and move up to the front of the class where I can see you).
Why is it going to take at least until December this year at the earliest (almost four months for goodness sake Frank!) for the “independent people including outside folk” to provide answers on the Homeside exposure? Is the Bank, its depositors, the market and everyone else just flying blind until then? Or just travelling on Francis’s “plan expectations” whatever they are?
What sort of management and corporate culture is it that has former executives reportedly saying (Australian 8-9 September 2001, Morgan Mellish and Ben Potter- Frankly Cicutto should have known) “A lot of people were very concerned and it came to me and I asked them to look into it, but was ignored;” and “I was upset about it but there was no point in pushing it because a lot of people before me that pushed got the sack. I didn’t want that to happen to me.”
Is more fear the answer?
Are the NAB Board members directing the affairs of the Bank and fulfilling their directors’ duties, or are Cicutto and the NAB senior management running the Board?
When is Bank Chairman Charles Allen going to make a full disclosure to the market and shareholders about the above issues?
Now reader, you could possibly be interested in the answers to these questions. But wouldn’t you like to hear the answers from the various authorities, up and at it doing their jobs? Welcome to memo corner.
Memo APRA Executive General Manager Les Phelps: if you don’t know the answers to these questions why not find out, and if and when you have, inform the market as a matter of your statutory responsibility, particularly the Bank’s capital position. Anyway, your ultimate boss The Treasurer may/will/should-if-he-wants-to-keep-his-job be calling you (see memo: Costello) in this election year, so it might be good insurance for you to have the answers to hand, might it not? APRA’s HIH ‘we know nothing’ line might not work this time.
Memo Humphry ASX: are you absolutely sure you are meeting your responsibilities to keep the market properly informed about what is happening at the Bank?
Memo Knott ASIC: no memo, it would be a total waste of time. Dave’s apparently too busy on Bank cheer squad duties to find out what is actually happening. Dave, after One.tel, HIH, Pasminco, Ansett and the NAB, you are starting to carry some form.
Memo Fels ACCC: no memo. Disappointingly, after the ACCC’s Easter Thursday cave-in on the ACCC’s card interchange fee NAB litigation (now in the black hole of the RBA which has done absolutely nothing since, except retain their membership of the Bank cheer squads), and to say nothing of the ACCC’s current approach to airline competition re Ansett-Qantas in marked contrast to the ACCC’s position on Australis’s demise, Fel’s ACCC is plainly not up to the task of tackling the deep seated Australian cartels. Alan baby, get in or get out, you can’t have it both ways.
Memo Treasurer Peter Costello: are you completely satisfied with the reports or non reports you are getting from APRA, ASIC and ASX? Have you got any reports even? After all, you’re the one with the statutory responsibility if a shareholder bailout of the NAB is required. Couldn’t happen, could it? Pete, how do you know? This is a world of surprises. Why don’t you just take out some insurance and haul in NAB Chairman Charles Allen and have him bring with him the answers to the above questions?
Les, Dick, Dave, Alan, Pete (even you Charles), just send your answers to Crikey. Very efficient.
We can forget the Australian Shareholders Association who, despite the ASA’s Tony McLean’s frequent column inches in The Australian, seems oblivious to all the signs of a corporation that is out-of-control and shafting everything in its path.
But when are the institutional shareholders going to tap new Chairman Charles Allen on the shoulder and say;
“Charles, mate, Cicutto and his senior management are toast. Please whistle up an EGM (and long before December-at-the-earliest) and we’ll get a new CEO and Board in to clean the place up and install a more progressive management culture. Until then, you chaps go and make some “plan expectations” to have an unequivocal good time and open-ended risk and capital management-fest somewhere else, but not with our money thanks. And for goodness sake, do nothing else until then. Promise? You’ve already done quite enough”
Finally, memo to Hulun Cluck of the Peoples’ Republic of New Zealand. Hulun, don’t expect any favours from NAB re Air New Zealand. The (new) NAB Board has/will have some new rules and new management in dealing with you New Zealand “folk”. You are the weakest link. Good-bye.
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