ASX Announcement - Chairman's Letter to Shareholders - 24 February 2004

Dear shareholder

I am writing to advise you that I have been elected Chairman of your Board by my fellow Directors and outline to you my short term priorities for the National Australia Bank.

The last couple of weeks have clearly been a difficult time for the National.  There have been negative headlines about our foreign currency options losses and criticisms from shareholders and the wider community about our performance.

I can assure you that all of your Directors took these issues very seriously.  Both Charles Allen and Frank Cicutto subsequently decided to resign because they believed it was in the best interests of the National and shareholders.

With those changes behind us, I look forward to working with the new Chief Executive, John Stewart, to rebuild confidence in Australia's leading financial services company.

I have three short term priorities. These are to:

1) deal with the foreign currency options matter in an open and transparent manner
2) accelerate the renewal of the board; and
3) lead by example in creating an open culture in the organisation.

Foreign currency options trading

So far as the currency options issues are concerned, we have engaged PricewaterhouseCoopers to advise us in an independent report on how control failures occurred and to ensure such events cannot happen again. We are also working with regulators and the Australian Federal Police to assist them with their inquiries.

PricewaterhouseCoopers will also present its findings to the Australian Prudential Regulation Authority (APRA) and the Australian Securities & Investments Commission (ASIC). The processes will ensure that APRA and ASIC will have access to full details of the investigation.  Issues raised by APRA, as part of its annual risk management reviews, were provided to PwC at the start of their investigation and will be dealt with in the PwC report.

It is important that this work is done thoroughly rather than rush to an arbitrary timetable. Good progress is being made by all of the interested parties and I estimate the PwC report will be delivered by the middle of March.

My expectation is that the report will show several control breakdowns.  Notwithstanding that, the Board intends to make as much of the PwC report public as is possible while ensuring we do not prejudice any future legal position.

The Board has engaged the services of Blake Dawson Waldron as probity advisers to ensure a high standard of governance is adhered to in producing an independent report for the Board. 

Board and committee composition

I am committed to building a world class Board which properly reflects the National's status as one of Australia's largest public companies.

We are reviewing the composition of Board Committees and will also recruit new Directors.  We have already instructed search consultants in Australia and Europe. Our objective is to get a UK based director, with financial services experience, to replace Sir Hugh Sykes, who is scheduled to retire as Chairman of National Australia Group Europe. That person will also be a Director of the National Australia Bank. I also plan to have one other non-executive Director with Australian financial services experience join the Board over the next few months.

I will substantially reduce my existing commitments as a Board Director on other companies to ensure that I can focus my attention on the Chairman's role at the National.

Openness

The National has been criticised for being arrogant and lacking in transparency in its dealings with key stakeholders.  I commit to listening to all of our stakeholders and doing whatever is needed to rebuild confidence in the National.

John Stewart and I have already started a comprehensive meetings program with shareholders and their representatives, broking analysts, the media and senior community leaders to understand their views.

We already have a very active cultural change program aimed at driving openness and accountability throughout the organisation whilst reducing bureaucracy. The Board strongly supports this program which John Stewart will now lead.

Under my chairmanship, the Board will show leadership, openness & transparency.

As such, I will continue to keep you informed of key developments at the National.

Yours sincerely

Graham Kraehe AO
Chairman