We don’t get too many exclusives at Crikey but this leaked email from NAB spinner Robert Hadler to CEO John Stewart last week was a ripper.

clusive: Inside the NAB/APRA spin

From the February 20 sealed section

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So, how does Australia’s biggest bank spin its way out of the damning evidence about NAB’s risk management to a Senate Estimates committee yesterday by the head of APRA, John Laker?

Well, this is the email that NAB spindoctor Robert Hadler yesterday sent new CEO John Stewart and a select group of senior executives at the bank:


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.

This issue has attracted considerable media attention. It has been on the electronic media this evening and will get prominent media coverage given the Treasurer and Federal Opposition commented on it in Question Time.

Graham Kraehe is scheduled to conduct several Saturday print media interviews and Business Sunday television interviews on Friday, so this issue will continue to run over the weekend.

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.

I would be pleased to discuss.

Regards, Robert Hadler

The key message are as follows:

  • We can confirm that APRA raised a range of market risk management framework and process issues with the National in 2003

  • The APRA issues were provided to PricewaterhouseCoopers at the start of their investigation.
  • PwC have advised the National that these issues, and other relevant matters, will be fully dealt with in their report. 
  • All accountability issues arising from the foreign currency options trading losses will be addressed after the PwC report is completed.

Meanwhile, former NAB executive turned freelance journalist Stuart Mackenzie has filed this analysis of yesterday’s developments:

APRA’s throws a grenade at NAB

The NAB’S weekend press

From the February 22 special Sunday sealed section

As our leaked email from NAB spindoctor Robert Hadler to CEO John Stewart and other executives showed, new NAB chairman Graham Kraehe did numerous interviews on Friday which played out in the Saturday papers and Sunday morning television.

A story in the Weekend Fin carrying Stewart Oldfield’s by-line quoted from our Friday exclusive without any attribution. We’re holding our fire on this one until we hear back from the players concerned as to how this happened.

Channel Seven’s Sunday Sunrise was the other outlet to point out the “embarrassing leak” but at least Michael Pascoe did it with full attribution.

A bigger piece in the Weekend Fin’s Perspective section by “Steward (sic) Oldfield and Andrew Cornell” contained this very interesting quote from Kraehe:

“When Charles announced his decision, nominations were called, I left the room and there was a unanimous vote.”

The piece quoted sources saying Kraehe was the only candidate and once you have six votes there is no point contesting the ballot.

The Australian’s Robert Gottliebsen also had some interesting lines in this interview:

Gottliebsen –

Agent of change

“A most important task is to change the dynamic of the way the board and management interface. I can do part of that and John Stewart another part,” Kraehe says.

“Having ticked all the corporate governance boxes, you can’t have good corporate governance unless you have what I’d call constructive and reasonably aggressive debate on issues around the board table.”

Does that mean Kraehe will be better in the role than Allen?

“I will have a different style,” he concedes. “Charles is a lovely fellow. He is very laid back. I am not laid back. I will manage the process for outcomes.”

Gottie also got this explanation from Kraehe on NAB’s risk committee:

“Being on the risk management committee does not increase the likelihood of anything negative coming out of the PWC report because it was the whole board’s responsibility,” he says. “The risk committee was actually formed after the major events that occurred. There has been a misconception about the role of the committee.”

Then there was the interview with Anthony Hughes for The Age/SMH:
Kraehe soothes risk nerves at NAB

We were particularly intrigued by this quote:

“I joined Southcorp as chief executive in 1994 and I retired as planned in March 200. Within that time frame, the share price rose from $2.68 to about $6.50 and its market capitalisation more than doubled and the profit more than doubled. I retired from Southcorp and resigned from the board before the decision was made to acquire Rosemount, which has been an unfortunate episode. My time at Southcorp I am very comfortable with and people can look at the facts.”

It is surprising that Kraehe doesn’t have his facts right on this because he told one of the Sunday morning business shows (would normally attribute but he was on all three and can’t remember which one it was) that he was still CEO for seven weeks after he resigned from the board.

If Kraehe retired “as planned in March 2001” then this was after the Rosemount deal but the ASX announcements suggested he left before the deal which was obviously being worked on for months before it was announced.

This is the sequence of events as we explained last week:

“It was announced on September 13, 2000, that Kraehe would be succeeded by Tom Park and the official handover happened on February 9, 2001, when Kraehe retired from the board.

The Rosemount deal was first publicly flagged by Southcorp 12 days later on February 21, 2001, and then formally announced on February 27, 2001.”

However, if Kraehe did stay on for seven weeks after quitting the board then he was involved in the Rosemount deal.

Fin Review reporter Simon Evans broke the story on February 15, just 6 days after Kraehe quit the board. His story began as follows:

“The wine industry is set for its biggest shake-up, with Southcorp poised for a $1 billion-plus merger with the privately owned NSW group Rosemount Wines.”

This story sent Southcorp shares down 4 per cent on the day, losing 23c to $5.79 and in the words of the Evans story “reversing some of the upward frenzy of the past few days, which had been fuelled by talk of a bid for Southcorp by British drinks group Allied Domecq”.

Graham Kraehe really is gilding the lilly claiming that Southcorp shares were at $6.50 when he left. They didn’t get to $6.50 until the end of March and this was on the back of the Rosemount deal which he is now busily trying to distance himself from.

Kraehe’s cutely worded claim of having lifted the share price from “$2.68 to about $6.50” is too clever by half.

His appointed was announced in November 1994 and the stock rose 7c to $2.95 that day. Therefore, the shares were at $2.88 before his appointment was priced into the stock and it was at about $5.80 when he quit the board on February 9, 2001. They may have got down to $2.68 after he joined and got up to $6.50 when his contract expired in March 2001 but the timeframe for measuring a CEO’s performance should be the day of announcement through to the day of departure.

Kraehe can’t on the one hand tell people he left before the Rosemount deal and then quote a share price performance reached a month after the Rosemount deal was announced.

Rosemount wasn’t a disaster from the word go as the deal sent Southcorp shares surging from $5.80 to a high of $8.20 in October 2001. 

As Chanticleer implied last week, there was also a minor accounting issue at Pacific BBA that emerged as he cleared his office to join Southcorp. The Fin Review’s coverage on November 23, 1994 began as follows:

“Shares in fast-growing Pacific BBA Ltd were sold down sharply yesterday after the company revealed that “accounting irregularities” had caused the 1993 and June 1994 profits to be overstated by a total of $2.96 million. Investors tore 13c off the share price.”

Kraehe, risk and News Corp

Moving right along, Kraehe’s interview with Michael Pascoe on Sunday Sunrise yesterday appeared to extract the admission that the new NAB chairman doesn’t remember anything from APRA reaching the board.

This would appear to he at odds with what the head of APRA told the Senate Estimates committee last week so there are plenty of legs in this whole saga yet.

Finally, the Alan Kohler Inside Business interview confirmed that Kraehe will be quitting the News Corp and Brambles boards this week. This will leave Rupert in breach of his undertaking to have at least two Australian-based directors. Crikey is available but we’re not holding our breath and Margaret Jackson did the big backflip last year so Rupert might struggle to land the high-profile Aussie woman he’s been looking for to diversify his all male boardroom.

Stewart replaces Kraehe as PWC report link

By Stuart Mackenzie
Former NAB executive turned freelance journalist

How does a public company conduct an investigation that may implicate its own directors, or potentially, its entire board? To whom should an external investigator report their findings and how does the company ensure probity throughout the investigatory process?

These questions appear to have been exercising minds at National Australia Bank as it strives to extinguish the forex option fire whose flames are creeping ever closer to the doors of the Bourke Street

When the engagement of accountants PricewaterhouseCoopers to conduct an independent investigation was announced by former chief executive Frank Cicutto on 15 January, their reporting line was to be via the board risk committee chaired by Graham Kraehe.

On 29 January, former chairman Charles Allen issued a special media release on governance arrangements for the PwC investigation, confirming the reporting line to the risk committee, but also revealing that PwC would be presenting “in camera” to other non-executive directors.

However, with PwC’s wide terms of reference potentially including investigating the conduct of directors to whom it was reporting, the bank faced an obvious probity issue.

After Allen fell on this sword on 16 February, new chairman Kraehe announced that law firm Blake Dawson Waldron had been engaged as “probity advisers” for the PwC investigation – a similar role to role to the earlier one they played after details of competing bids for NAB’s audit work were inadvertently disclosed to incumbents KPMG.

However, PwC’s reporting line was apparently still to the risk committee – until Thursday last week.  On the same day that the Australian Prudential Regulatory Authority revealed that it had raised concerns about NAB’s risk management practices directly with the board in early 2003, Stewart told analysts that he was now the only director in direct contact with PwC’s investigation team.

A NAB spokesman confirmed that Stewart’s remoteness from the Australian risk management issues, and his almost complete focus on the bank’s UK operations, since his appointment to the board in August 2003 was a prime factor in this change of reporting line away from the board risk committee.

It appears fortuitous indeed that NAB has at least one sufficiently independent director to talk to the PwC fire brigade.