New NAB CEO John Stewart obviously didn’t take long to be captured by the NAB legal and PR departments. And APRA and PwC get into the act, as Crikey’s exclusive on the email from PR operative Robert Hadler to Stewart last Friday shows. Barry Banker comments.

NAB PR operative Robert Hadler was revealing last week on matters National and showed that the old management team is alive and thriving under ‘new boy’ CEO John Stewart and old boy Graham Kraehe.

Says Rob:

“I have attached our key messages in response to the APRA remarks in Parliament today about its market risk assessments prior to the forex losses. The key messages were agreed with APRA, PwC and David Krasnostein ….”

And a clear and present danger apparently from “knee jerk political reactions” from no less than the Treasurer, Mr Peter Costello.

‘We anticipated that this would be raised in Senate Estimates Hearings and had Richard King in Canberra to brief us early and brief the Treasurer’s office to avoid a knee jerk political reaction…..

“Our tactic is to confirm the APRA report but buy breathing space until the PwC report is released so that full details will be diluted in the overall report and accountability actions.

Regards, Robert Hadler”

Treasurer Costello must have been tickled pink to know that, not only are NAB’s legal and PR operatives thinking of him, but ‘independent’ APRA and PwC are now in the role of pre-‘agreeing’ NAB’s spin. They even seem to be on level ‘agreement’ pegging with NAB’s general counsel, David Krasnostein. How nice and cosy.

One can imagine Treasurer Costello’s reaction. Unless he’s been taking yoga lessons in multi-tasking athletics, it is almost impossible to see him ‘knee jerking’ whilst doubled up in laughter.

And how about CEO Stewart. Showing what a sage choice he was for the job of replacing the NAB Board, CEO Stewart passed this particular hospital pass to New Chairman Kraehe who duly trotted out its thrust on Friday to the media Saturday and Sunday press. Come in spinner, or something like that.

One can imagine Stewart’s reply to Dick. Memo John to Dick – please refrain from using the word ‘jerk’ in communications with my name in them – this is a job for Graeme, sorry, Graham – good luck, John.

Stewart will know that the primary business of banking is the business of risk intermediation, as NAB’s one time chairman Sir Rupert Clarke (‘86-‘92) once articulated so well in one of his NAB Annual Reports. If losses aren’t being incurred from time to time, the bank is simply not taking enough risk.

And banks are a risky business by their very nature. This simple fact of banking life seems to escape some of the analysts and media writers most of the time. And big banks demonstrate this from time to time by taking big hits. It’s all relative and explains why banks have historically been priced at 7 to 8 times earnings.

So what’s the real problem at the NAB? Answer? Looks like the boys and girl (Catharine Walter) on the NAB Board, in the aftermath of published disasters, lost the confidence of the market. The analysts and media seem to have got the big picture right, at last. Remember NAB’s promo of yesteryear which went something like ‘don’t forget the big picture, we won’t’.

The board and senior management are about to find out in no uncertain terms that the glow of a big balance sheet boasting a tonne of shareholders funds is no substitute for banking skill and business acumen, to say nothing of the big picture, if they ever thought it was.

Put another way, past apparent success in some other field or company won’t prevent a bank from going bust. A bank is unlike an industrial or mining company for example. It has a very highly leveraged balance sheet that is very risk sensitive indeed.

So what was the NAB Board thinking of when they formed a risk sub-committee of the board? Risk management and oversight in a bank in particular is a total board responsibility. A sub-committee, working or otherwise, merely splits the responsibility and accountability. If the management is not up to keeping the board informed on capital allocation and associated risks, change the management, it’s their job, not the board’s. No wonder immediate past chairman Charles Allen referred to finger pointing. He set the scene and faced the music.

Banks enjoy a privileged and protected position in business, stemming from their status as deposit taking entities. Memo APRA and Treasurer Costello (and let’s not forget PwC) – if this crew can’t tell which way is up, absolutely insist on a crew change. That’s your prerogative, as you know.

One wonders what Chairman Kraehe, the new found messiah, has been doing all these years about the raft of newly recognized shortcomings he sees at NAB. Basically, it appears he has been content to go with the flow. And take advice from the same management, legal and PR crew who brought NAB shareholders Homeside and other fiascos. Memo APRA and Treasurer Costello and institutional shareholders – refer to previous memo – think dilution to the point of liquidation and some instillation of some core values that will make people proud of the NAB. Think deep surgery and reconstruction.

In the new found spirit of transparency and goodwill at NAB, the ‘legally privileged’ Homeside report and its genesis and the results of the APRA–led investigation of any other big-ticket balance sheet exposures and procedures at NAB will no doubt come to light.

As for matters legal and one David Krasnostein and his colourful history, have a look at http://www.cyberjustice.com.au/bboard.asp on Telstra: “The Plot thickens” – A Senator, a Bank and a Law firm. 5/2/00 and http://www.asianlegalonline.com/asia/detail_article.cfm?articleID=917 on how he came from Telstra to his present job as general counsel of NAB.

Could it be that PR Dick’s efforts, echoed by Chairman Kraehe, could unwittingly put APRA in the hot seat if new disasters come to light that the NAB Board decides should not be made too transparent, possibly ‘for legal reasons’?

Memo APRA and Treasurer Costello – think pencils and shoelaces on Collins Street (and now Bourke Street) and short shrift all round, on a deep and meaningful scale.

Barry Banker

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