National Board Releases HomeSide Review Outcomes - 21 January 2002

National Australia Group Chairman Charles Allen today released the conclusions of the independent review into the events surrounding last year's writedowns of HomeSide Lending Inc.

Mr Allen outlined the actions to be taken by the National Group in response to the report of the review conducted by New York law firm Wachtell, Lipton, Rosen & Katz, in conjunction with US regulatory consultants Promontory Financial Group LLC.

Mr Allen said that although the report itself remained confidential, the Board was releasing the report's conclusions (attached) in the interests of keeping shareholders and the public informed.

"Our priorities since the September writedown have been to stabilise the HomeSide business, to keep the market informed and to initiate a review process that would enable us to understand what went wrong and what we can do to ensure that similar events cannot happen again."

Mr Allen said the review had been extensive and wide-ranging. More than 50 people had been interviewed and some half a million pages of documents reviewed.

"The outcomes of the review have provided us with a detailed explanation of the factors which contributed to the writedowns and the basis on which to consider and take further remedial actions," he said.

"Although the review notes the prompt actions taken by the Board and Group executive in addressing the problems at HomeSide, it has highlighted some areas in which improvements can be made, in addition to the changes already implemented immediately after the writedowns.

Mr Allen said the review found no evidence that National Australia Group directors or executives were derelict in their duties.

"Accordingly, the Board has reaffirmed that Frank Cicutto has its confidence as Managing Director and Chief Executive Officer, as do other Group executives involved in the management of HomeSide."

On 12 December, the Group announced the sale of HomeSide's operating platform and all its operating assets to Washington Mutual Inc.

Mr Allen said the review was now complete, bringing to an end an unfortunate chapter in the history of the National.

"The Board and management are committed to moving forward with confidence to pursue strategies to grow shareholder wealth," Mr Allen said.

The Board has determined to take the following actions in response to the conclusions of the Review:

Executive accountabilities:

HomeSide - three senior executives of HomeSide were relieved of their duties in September and their employment has since been formally terminated. The executives have initiated an arbitration claim against HomeSide for recovery of contractual entitlements. HomeSide has counter-claimed for substantial damages as a consequence of the writedowns.

Group - senior executives' performance-related payments have been reduced significantly to reflect the impact of the HomeSide writedowns on the Group's financial results for 2001.

Risk Management

Senior bank executives skilled in finance and risk management will be appointed to and remain members of the executive teams of all major subsidiaries, regardless of the type of business.

Internal audit

Internal audit processes will be revised to enhance the level of oversight by the Principal Board Audit Committee of subsidiary company audit issues.

Due diligence

Current policies and processes will be reviewed to ensure implementation of all issues identified during due diligence.