In recent times the organization has been in turmoil. The bank was involved in a foreign exchange (ForEx) scandal, costing the Bank $360 million,8 the Bank also lost $3. 05 billion in its failed attempts to expand into the United States mortgage market and made losses on its AMP stake. The National Australia Bank has, in the past, actively pursued an acquisitive strategy; this has been evident in the multiple acquisitions which the company has made since its beginnings in 1858.
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9 Such an acquisitive strategy may be causing the National to expand into areas in which the organization may not be competent. Such a lack of competency has been evident in the aforementioned HomeSide, Foreign Exchange and AMP debacles. The NAB also has a weak corporate culture which has allowed such instances to take place. HomeSide is a home-loan lending bank, which was formed in 2000 and combined the operations of HomeSide Lending, Inc. (HomeSide United States) with a division of the NAB (HomeSide Australia).
The NAB was later forced to sell off HomeSide, to Washington Mutual, as a result of fiscal bleeding, caused by high US interest rates, a negative (US) economy and an over-valuation of the company. “The HomeSide debacle was the second biggest single loss in Australian corporate history with the bank writing down the business by $3. 05 billion in September 2001,”10 this $3. 05would later total $4 billion. The foreign exchange debacle began in late 2003 and involved a failure, on behalf of the organization, to regulate, account and monitor the trading of options.
This failure caused room within the organization for unauthorized trading. This unauthorized trading occurred in the Corporate and Institutional Banking sector of the organization and the reverberations of this action has seen the resignation of the company’s CEO, Frank Cicutto and other NAB executives and has seen the organisation in damage control. Because of the ForEx trading scandal the NAB was forced to sell off its strategic stakes in AMP and St George for $1billion, to cover the $360million loss.
The sale of these strategic stakes means that the NAB will no longer be able to launch an acquisition of these organizations. The weight of these fiascos is starting to take its toll on the NAB, especially at the corporate level where major restructuring is imminent. Following the HomeSide and FOREX losses, the National board has been forced to review its operations and corporate image. As a result of this, Frank Cicutto recently resigned from his position as NAB CEO with the board appointing John Stewart as his successor.
Mr.Stewart is in effect the first outsider to be appointed as chief executive11, which represents a major culture move for the company, however he would not be drawn to comment in regards to restructuring the company as a result of the recent shortfalls the NAB has experienced but mentioned that any changes would occur only after careful deliberation. Mr Stewart believes that his major challenges facing him are rebuilding and enhancing a strong but damaged culture, focusing on the UK and improving the banks risk management. The market reacted well to Mr.
Stewart’s appointment based on his history of turning business around. Mr. Stewart hasn’t stopped there. He has continued his attempts to accelerate culture change with the recent creation of 2 new positions12 that he believes will elevate the importance of cultural change and governance as part of his revitalisation agenda. “It is clear that the National needs to become more outward looking, transparent and positive” Mr. Stewart said. He also spoke of the need to get the basics right for their key stakeholders, including customers, staff, regulators, shareholders and the broader community.
The first position will be headed by Peter McKinnon and has been created to identify areas in which the organisation can be streamlined, with possible downsizing and restructuring in the future, and to better integrate key functions within the National in order for them to have a more effective approach to dealing with stakeholders. The second position, occupied by Lynne Peacock has been developed in order to ensure that governance processes are improved and to accelerate the positive cultural change that must occur to ensure that the National stays competitive.
One noticeable change to the NAB’s public face is the addition of a Corporate Governance section at their main corporate website Nabgroup. com These changes are tangible evidence of the ongoing revitalisation of the National, its leadership team and the way they do business. It appears that Mr. Stewart’s appointment was a good step in the right direction for the National’s resurrection. On a more negative note however, the knife has to cut deeper into National Australia Bank before confidence in the management of Australia’s biggest financial institution is fully restored.
The key question arising from the PricewaterhouseCoopers13 report into the bank’s $360 million foreign-exchange debacle is whether the deception, mismanagement and buck-passing that allowed it to develop is an aberration or part of an ingrained culture that makes more disasters likely. At this stage, we don’t really know, however we do know that it is a culture that Mr. Stewart is keen to change, which would suggest there is some internal disagreeance. According to the new chief executive, John Stewart, the vast bulk of the bank is properly run, but there are pockets inside NAB where similar attitudes are entrenched.
Stewart says he intends to cut out the problem areas, and wield the knife quickly. The division in his sights is the home of the $360 million disaster – corporate and institutional banking. Divisional head Ian Scholes departed last Friday, as did the four traders involved, the markets division head, Ron Erdos, and the head of foreign exchange in the markets unit, Gary Dillon. That will be only the start of a much bigger cull if Stewart is serious, because there was simply not enough appreciation of the risks that were developing inside the bank.
Since the National’s inception in 1858, the organisation has operated with an acquisitive strategy. As a result of this, multiple cultures have been integrated into the organisation over time, which it appears may have had a negative impact in some circumstances. It has only been recently that these cultural and organisational issues have come to light and as a result, there has been some serious organisational change that has occurred, with the intention of developing the organisation into a global banking powerhouse, as it has been known in the past