NAB shores up confidence

By Lachlan Colquhoun

Thursday 5th February 2004

Dreams of UK expansion and southern hemisphere dominance will take a back seat for Australia's top-ranked National Australia Bank under new chief executive John Stewart after the shock resignation of former chief Frank Cicutto.

Mr Stewart, a 54-year-old Scot who only joined NAB last year to run its European operations, said his priority was for the bank parent of Bank of New Zealand to restore confidence.

"This is not just about a foreign exchange scam, this is about a lack of confidence in the bank," he said. "There are a lot of issues we have to get to the bottom of."

Mr Cicutto, a 37-year NAB employee who had been chief executive since 1999, fell on his sword over the foreign exchange trading scandal, which came to market attention in January and put a $A360 million hole in the bank's balance sheet.

"I have decided that it is in the best interests of the bank and the shareholders to do so at this time," he said of his resignation.

Mr Cicutto, called a "teflon" chief executive by one fund manager recently, had been widely expected to tough out the scandal, and as recently as last week re-affirmed his intention to serve out his three-year contract, renewed last October.

The bank has asked accountancy group PricewaterhouseCoopers to conduct an investigation into the affair, and Mr Cicutto was expected to wait for that report, expected later this month.

"I see it as the straw which broke the camel's back," said a trader at a US bank in Sydney. "They've had a number of disasters and questionable events under his leadership, and if there wasn't that history I believe he could have survived."

JP Morgan analyst Brian Johnson said he believed more heads could roll at the NAB, and predicted changes to the board.

Under Mr Cicutto's stewardship, the NAB was forced to write off $A3.6 million on the value of US mortgage lender HomeSide, had an exposure of about $A200 million to a failed Australian bus company and was widely criticised for its botched sharemarket raid on AMP last year, which was intended to grab more than 10% of the company but emerged with barely 5%.

At CS First Boston, analyst Nick Selvaratnam called Mr Stewart a "change agent" who, despite his hasty appointment, "was an excellent and well suited candidate" who would bring "clear definition" to the bank's UK strategy.

"Our only concern is whether Mr Stewart's experience is sufficiently broad for the NAB, which is a multi-national commercial bank," Mr Selvaratnam's research note said.

Mr Cicutto will receive a termination payment of $A3.27 million, which includes a payment in lieu of six months' notice. By resigning now, he will forgo $A1.2 million in NAB shares approved by shareholders at the 2003 annual meeting.

NAB shares, which started to move higher last week when Mr Cicutto announced the A$1.3 billion sales of strategic stakes in potential takeover targets AMP and St George Bank, also moved higher on news of the resignation and pierced the $A31 barrier.

The stock was trading in the mid-$A29 range at the height of market concern over the forex scandal in January, which saw the suspension of the bank's four-person currency options trading team for trading beyond its limits in taking positions on the Australian and New Zealand dollars in October.

The head of the team, David Bullen, has insisted the bank knew he was trading above his limits and did nothing. The NAB, for its part, has claimed these were unauthorised trades.

These events have left the NAB without any major growth path involving acquisition in either the UK or Australia. After failing to find a willing merger partner in the UK, the NAB had turned its sights on Australia last year, with plans to take over the Australian operations of the troubled AMP, which has recently de-merged its UK operations.

Mr Stewart is a former deputy chief executive of UK bank Barclays and is credited with turning around the fortunes of Barclay's unit Woolwich in the UK. On arrival in Australia this week to take charge, he told journalists he didn't believe the NAB needed a major acquisition in the UK where it owns a stable of three regional banks to build up its business there.

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