National Australia Bank gave its discredited Scottish CEO John Stewart the boot this morning and replaced him with little-known New Zealand chief Cameron Clyne.

Whilst chairman Michael Chaney is clearly responding to the market savaging meted out last Friday when NAB’s market capitalisation plunged by $7 billion after an $830 million provision against US mortgage investments, Stewart hasn’t been frog-marched out the door.

Clyne won’t become CEO-designate until October 1, after books close for NAB’s financial year and then Stewart leaves the building on January 1, so the process is less speedy than Geoff Dixon’s early departure from Qantas.

Stewart made his name building up the Woolwich Building Society as CEO from 1996 until it was taken over by Barclays in 2000. He stayed on for three years as a deputy CEO of Barclays before Frank Cicutto recruited him to run NAB’s UK operations in 2003.

Whilst NAB fired no Australians after the fiasco of its $3 billion Homeside loss in 2001, the $360 million foreign exchange scandal in 2003-04 caused the biggest clean out in its history as the chairman, CEO, half the board and a range of senior executives got the boot whilst some of the offending forex dealers went to jail.

John Stewart was the best internal cleanskin available but he only signed a three year contract which specified this was to conclude with a one way flight to London.

That expired in February 2007, but new chairman Michael Chaney wasn’t happy with the internal candidates, most notably Australasian boss Ahmed Fahour, and persuaded Stewart to stay. In August last year, this lucrative new year four-year incentive scheme was announced.

The Santos board quite outrageously granted $15 million worth of performance shares to ousted CEO John Ellice-Flint without seeking shareholder approval. Clyne’s new contract is very lucrative, so don’t be surprised if Stewart collects more than $10 million and shareholders aren’t told until the 2009 annual report comes out in 17 months’ time.

NAB shares fell marginally in a stronger market today, so investors are hardly celebrating the relatively unknown Clyde’s appointment and clearly fear more bad debts.

NAB’s finance director Michael Ullmer was in the Herald Sun this morning blasting rating agency Standard & Poors for predicting more write-downs because the CDO provisions only related to “one small part of its entire portfolio”.

This might have been a case of S&P hitting back after John Stewart’s controversial performance with Alan Kohler on Inside Business when he declared that “the only error NAB made was investing in AAA securities which have a one in 10,000 chance of defaulting”.

Ullmer lashed back at S&P, saying: “I was very disappointed at the comments made because it is easy for them to be taken out of context. We have disclosed everything.”

This will make it very difficult for Cameron Clyde to do the usual thing and clear the decks with huge write-downs, although Ullmer is not expected to last much longer either.

But with the UK banking market deteriorating rapidly and plenty more US mortgage exposures sitting in NAB conduits, stand by for much bigger loss provisions which will make the NAB board look pretty stupid, especially chairman Chaney.

*Listen to this morning’s NAB discussion on ABC Newsradio.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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