'Accident-prone' bank CEO under pressure

Lachlan Colquhoun

Friday 23rd January 2004

Pressure was mounting yesterday on the chief executive of Australia's top-ranked National Australia Bank, Frank Cicutto, in the wake of a currency options scandal that could cost the bank as much as $A600 million.

NAB is the parent of Bank of New Zealand.

Amid claims from David Bullen the NAB's chief dealer of foreign exchange options and one of four traders suspended over the affair that the bank knew for several months that his unit was trading above permissible limits, the focus has turned to Cicutto and what some analysts are calling his "accident-prone" leadership.

Sydney-based analyst Brian Johnson, from JP Morgan, has produced a list called "the 15 Evil Sins of NAB."

It outlines a string of what he calls "negative events" at the bank over the past few years.

In addition to the current forex scandal, which could cost the bank anywhere between $A185-600 million, the bank also lost $A3.6 billion in writedowns on its former HomeSide mortgage business in the US, had an exposure of about $A200 million to a failed Australian bus company and was sued for more than $A70 million by victims of a fraud created by a NAB employee in South Korea.

The market has also been highly critical of its sharemarket raid on stricken rival AMP last year, in which the NAB aimed to grab more than 11% of AMP but could only secure 5%.

With NAB's risk management procedures under scrutiny, JP Morgan's Johnson said a risk committee comprising Cicutto did not meet at all during the 2003 financial year.

"This indicates to us that the board has not taken sufficient action subsequent to HomeSide to improve the management and internal audit functions," Johnson said.

Suspended trader Bullen this week claimed the bank's "risk-management people" knew his four-member team had been trading over its limits "for a number of months" but this was denied by the NAB.

A bank spokesman said regulators and the Australian Federal Police were investigating the matter and that criminal charges would follow.

"The bank has quite clearly said that these were unauthorised trades," the spokesman said.

Four traders three in Melbourne and one in London have been suspended over the affair, which the bank has explained as rogue trades conducted in October punting on falls in both the A$ and NZ$.

Cicutto signed a fresh three-year contract last October with a salary of $A2 million but could more than double that if the bank clears performance hurdles.

Under the bank's options scheme he also stands to make another $A4 million.

With 30 years' service at the NAB and with a clause for 18 months' salary if terminated, it is estimated Cicutto's "kiss off" payment would be about $A6 million if he was sacked, or forced to resign.

The bank has stonewalled in the face of the market speculation, with NAB chairman Charles Allen last week saying Cicutto has the full support of the board.

Allen sent a letter to shareholders this week begging for patience, and promising that the results of an independent PricewaterhouseCoopers' investigation into the affair would be made public.

NAB shares had a turbulent week, with more than $A500 million wiped off the company's market capitalisation on Wednesday before rebounding slightly after Allen's letter was released.

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