NAB CEO Frank Cicutto begain his AGM speech by promising to tell “a compelling story – the National story”. NAB watcher Eliot Broomhead was not impressed with what followed.

It is not an attractive one. Any thinking shareholder should find it a repelling story.

Apart from Perpetual, who at least attempted to get some knowledgeable talent on the Board by opposing the re-election of NAB Director Ken Moss, the rest of the NAB shareholders including most notably the brain dead institutions appear to be in fat dumb and happy mode. Apart from that, they apparently cannot be relied upon to bring weak and ineffective Boards and management to
account until it is too late. There are just too many agency connections, superannuation carve ups, investment banking and brokerage to name just three.

Put a fork in them, the election is almost done.

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Alan Kohler’s weekend article (AFR December 20-23)on Emperor CEO’s points up the dangers to shareholders of passive Boards and ’emperor CEOs’.

NAB’s 2002 AGM shows that Kohler’s cap could have been fashioned with NAB in mind.

Pamela Williams article in the same AFR issue on Eliot Spitzer, “when no-one else would …this man took on Wall Street” shows what can happen when the regulator, the SEC, stays on the sidelines. Williams reports that Spitzer, when asked about tensions with the SEC (Bush appointee SEC chief Harvey Pitt was recently replaced ) replied “When one is not as aggressive as is appropriate, then someone else will step in”.

NAB Board, David Knott and APRA please take note.

The Homeside situation had been brewing from some time before it all hit the fan in mid 2001. As Crikey reports, Mr Chris Lewis went from heading up a KPMG due diligence committee that recommended buying Homeside in 1998, to signing the accounts as KPMG’s NAB audit partner in 1999 and 2000, to an executive position with the bank as global head of risk management in 2001.

Long time audit committee members Charles Allen and Catherine Walter among others now departed presided over this situation at the main Board level, whilst CEO Cicutto, now CFO McKinnon and the now departed Bob Prowse handled things at the management or mismanagement level.

CLERP 9, 10, 11 or whatever has nothing to do with anything.

These five people (six if Prowse is included) should have been compelled off the NAB shareholders’ payroll, far less Cicutto being further rewarded with another 300,000 options or whatever spin descriptor is put on them.

What happened then at the NAB AGM?

Crikey’s Stephen Mayne followed up with this question.

“A question for both the signing auditor from KPMG and Catherine Walter, chairman of the NAB audit committee. I understand that Blake Dawson Waldron partner Anne Dalton was the probity officer advising the audit committee on the tender process this year that saw KPMG reappointed as the company’s auditor for five years with a two year option. Many people were disappointed that KPMG won the tender in light of the $4 billion Homeside debacle, which it failed to warn about. I understand that sensitive bid documents from rival audit firms were inadvertently sent to KPMG during the tender process and that the probity officer investigated this incident. What was the nature
and the outcome of this investigation by Ms Dalton and are you confident there was no conflict of interest or process flaw which has left KPMG’s reappointment compromised?”

Allen replied that he was quite comfortable that the tender process was appropriately managed, and maintained that it was a clear and open process. He then asked Catherine Walter to comment, who said in her deadpan auditor’s style that the process was entirely satisfactory.
Well, doesn’t anyone find this situation curious, even bizarre?

Allen stands condemned out of his own mouth. Appropriate management for the incumbent KPMG to get the rival bid documents? How compelling a story is that?

Clear and open? Entirely satisfactory? Absolutely where KPMG was concerned.

Compelling for shareholders?

Absolutely. This presents a compelling case for shareholders to demand the release of “probity officer” Anne Dalton’s report on the “incident” along with a compelling request for Allen’s and Walter’s resignations as NAB directors.

And finally, a look at NAB’s “capital management” under the current NAB crew, to the nearest billion or so.

Homeside debacle $4 billion
Sharebuyback (price support scheme) $3 billion
Wealth management $5 billion (MLC+)

Total $12 billion – that’s $12 BILLION DOLLARS

NAB shareholder funds are now reported as $23 billion. Some capital management program.

If that $12 billion had been deployed in traditional banking lending operations, geared the traditional 16 times to produce a $192 billion loan book, and yielding the traditional 1% profit after tax, or $10 million profit per billion of loan book, NAB’s profit would have been around $2 billion more, around $5.4 billion instead of the $3.4 billion NAB reported.

No wonder NAB’s share price is sluggish, even though some analysts see some silk lining when they say the NAB shareprice has ‘outperformed’ the market because of the massive on market share buyback. What happens when the money runs out? Another extension to the buyback scheme? Gimme a break!

Now that’s a compelling story! Corporate shrinkage on an unprecedented scale. And Cicutto was rewarded for it?

What planet are the NAB shareholders, analysts and regulators on letting these people get away with this operatic corporate wealth destruction? And worse, not even questioning it. Crikey is a lone AGM voice. The current NAB crew make BHP management of old look good!

As it is, NAB reported a princely $112 million members profit from wealth management, under Geoff Tomlinson. Remember Geoff? He was on watch at National Mutual when it imploded resulting in the bail out by AXA. That’s not exactly successful experience, but as Ian Burgess remarked recently when defending Mark Rayner’s (remember ex-NAB Chairman Rayner, also of Mayne > (Nickless), Pasminco and Comalco fame?) appointment as Chairman of WMC spin off Alumina Ltd, that experience does not have to be successful to qualify. Quite so.

And NAB shareholders might reflect on whether they really want main board members chairing reporting subsidiaries. Tomlinson chairs National Wealth Management Holdings Ltd, home of Cicutto’s great white wealth management hope. What goes on at NAB Board meetings? Does Geoff get accolades from plummy Charles for leading the charge into wealth management?

The NAB Board, shareholders and regulators could look to Eliot Spitzer: “When one is not as aggressive as is appropriate, then someone else will step in”.

New broom, clean up time. Enough’s enough.

Expect more from your journalism.

Crikey is an independent Australian-owned and run outfit. It doesn’t enjoy the vast resources of the country’s main media organisations. We take seriously our responsibility to bear witness.

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Peter Fray
Peter Fray
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