ASX Announcement - The National Files its Annual Form 20-F with the US SEC - 26 March 2004

The National has today filed its annual report on form 20-F with the US Securities and Exchange Commission (SEC).

The National's annual report on Form 20-F contains a number of changes to the disclosure contained in the National's 2003 annual financial report lodged with ASIC. These changes primarily result from events which have occurred during the period between the lodgment of the National's annual financial report and the filing of the annual report on form 20-F.

The events occurring subsequent to the 30 September 2003 balance date disclosed in the Form 20-F that have not been previously disclosed relate to tax matters involving the TrUEPrS capital raising and BNZ structured finance transactions.  These matters are covered in detail in the form 20-F and are outlined in the attached summary, together with the other main changes and updates.

For further information:

Brandon Phillips    
Group Manager    
Group Corporate Affairs   
03 8641 3857    
0419 369 058    

Summary of the main changes in the National's annual report on form 20-F filed with the US SEC from the annual financial report lodged with ASIC.

Page references refer to page numbers in the Group's annual report on form 20-F.

This document is a summary of information only and is not a complete extract of the additional disclosures in the Form 20-F.  For the full text of the disclosures, please refer to the attached annual financial report on Form 20-F.

Events subsequent to balance date

Those changes/updates of particular note are as follows, and these disclosures have been included in the form 20-F as events subsequent to balance date (included in the report on the directors and officers on page 74 and note 59 on page 198).

Election to consolidate for Australian tax purposes

At the date of this report, the Company has resolved to make an election to consolidate for Australian income tax purposes.  On making such an election, the Company would be the head entity in a tax-consolidated group comprising the Company and all of its Australian wholly-owned subsidiaries.  The financial effects of the tax consolidation legislation cannot be estimated reliably at this point in time and have not been brought to account in the financial statements for the year ended September 30, 2003, except as stated in note 23 of the financial report.

Ordinary share buy back

On October 1, 2003 the Company announced its intention to buy back ordinary shares on market approximately equal to the number of shares issued under the Company's dividend package plans and staff share and option plans.  The Company had expected this to be up to approximately 25,500,000 ordinary shares over the period from November 11, 2003 until September 30, 2004.  However the Company announced on March 24, 2004 that it was terminating this share buy back program.

Redemption of Trust Units Exchangeable for Preference Shares TM (TrUEPrSSM) and buy-back of shares issued in connection with the TrUEPrSSM

On January 22, 2004 the Company bought back 36,008,000 fully paid non-converting non-cumulative preference shares of the Company that were issued in connection with the issue of 18,004,000 TrUEPrS in 1998. TrUEPrS were redeemed on the same date.  The financial effects of the buy-back, redemption and dissolution of the capital raising structure to be recognised in the 2004 financial year include a reduction in contributed equity of $730 million, a reduction in cash of $582 million and a net increase in retained profits and reserves of $148 million.

Foreign currency options losses

In January 2004, the Company announced that it had identified losses relating to unauthorised trading in foreign currency options and had established a structured process to review and resolve all issues arising from this matter. A third party investigation into this matter was conducted by PricewaterhouseCoopers. The Company is also responding to related requests for information from Australian and UK authorities and regulators and the United States SEC.

Based on its assessment, the Company announced a total loss of $360 million before tax, or $252 million after tax, arising from the unauthorised foreign currency options trading. The Company analysed the amount of these losses that were incurred during the fiscal year ended September 30, 2003. This 2003 amount is estimated at $66 million ($42 million due to false transactions and $24 million due to valuation adjustments) before tax, or $46 million after tax, which is included in the above total loss announced. Under applicable accounting principles, based on a quantitative and qualitative assessment of the loss incurred in 2003, that amount has not been recognised in the financial statements for that year, which were published prior to discovery of the losses. The Company will recognise the total losses during the 2004 year.

Following the release of the PricewaterhouseCoopers report, the Board announced a four point action plan to fully address all of the issues associated with the foreign currency options trading losses.  This is set out in detail in the attached Form 20-F.

The complete PricewaterhouseCoopers report is available on the Group's website at www.nabgroup.com

APRA has also provided to the Company a report on its investigation into irregular currency options trading.  That report identifies problems and issues in respect of management supervision, adherence to risk management systems and controls, internal governance procedures and the culture of the Company similar to those described in the PricewaterhouseCoopers report. 

The Company will commence a program to implement the actions required by APRA according to agreed timeframes.  These include:

• An increase in the internal target total capital adequacy ratio to 10%, until APRA is satisfied that all material weaknesses identified in its report are rectified;
• The adoption of the APRA standard model to determine market risk capital;
• The closure of the currency options trading desk to corporate business and proprietary trading until new limit structures have been approved; all key staff have been settled; and substantial progress has been made to redress the issues raised in the APRA report; and
• Addressing cultural issues that were identified by both PwC and APRA.

The complete APRA report is available on the Group's website at www.nabgroup.com

Sale of shareholdings

On January 28, 2004, the Company sold its shareholdings in St George Bank Limited, AMP Limited and HHG Plc.  This resulted in a profit on sale of $322 million after tax.  The financial effects of the sale have not been brought to account in the financial statements for the year ended September 30, 2003.  The Company will recognise the profit on sale during the 2004 financial year.

Managing Director and Chief Executive Officer – resignation and appointment

On February 2, 2004, the Board announced the appointment of Mr John M Stewart as the Company's Managing Director and Chief Executive Officer, following the resignation of Mr Frank J Cicutto. For full details of Mr Frank J Cicutto's deed of settlement and release refer to 'material contracts' on page 212 in the 'shareholders information' section.  Mr Stewart commenced this position effective immediately from the date of the announcement, however, his new contract of employment remains under negotiation at the date of this financial report.
 
The financial effect of the resignation payment to Mr Cicutto has not been brought to account in the financial statements for the year ended September 30, 2003.  This will be recognised as an expense in the 2004 financial year.  Mr Cicutto's annual leave and long service leave benefits and deferred performance-based remuneration incentive other than matching shares were accrued as at September 30, 2003.  Any entitlement to annual leave and long service leave benefits accruing after September 30, 2003 will be recognised as an expense in the 2004 financial year.  No financial effect will arise from the matching shares foregone.

Chairman of the Board – resignation and appointment

On February 16, 2004, the Board announced the appointment of Mr Graham J Kraehe as the Company's Chairman, following the resignation of Mr D Charles K Allen as Chairman and a director.  Refer to the 'Report on the directors and officers' (page 78) for the retirement benefits payable to Mr Allen as at September 30, 2003.  Mr Kraehe commenced this position effective immediately from the date of the announcement.

Directors' retirement benefits are accrued each year and any post September 30, 2003 retirement benefits will be recognised as an expense in the 2004 financial year.

Amended assessment from the Australian Tax Office - exchangeable capital units

On February 26, 2004, the Company announced that it had received amended assessments from the Australian Tax Office (ATO) that seek to disallow interest deductions on the Company's exchangeable capital units (ExCaps) for the tax years 1997 to 2000. The ATO assessments are for $157 million of primary tax and interest and penalties of $150 million (after tax), a total of $307 million (after tax). The ATO is considering its position in respect of interest deductions claimed by the Company on its ExCaps for 2001 to 2003. The amount of primary tax relating to these interest deductions is approximately $135 million. If the ATO issues amended assessments in respect of these years it is possible interest and penalties would also apply.

The Company is confident that its position in relation to the application of the taxation law is correct and intends to dispute the amended assessments and pursue all necessary avenues of objection and appeal.

The financial effects of the amended assessments from the ATO have not been brought to account in the financial statements for the year ended September 30, 2003. Any amount paid to the ATO whilst these amended assessments are in dispute will be accounted for by the Company as an asset on the statement of financial position.  Any amount unpaid whilst these amended assessments are in dispute will be disclosed in the notes to the financial statements as a contingent liability.

Australian Taxation Office position on TrUEPrS capital raising

The Australian Taxation Office (ATO) has also confirmed that it intends to issue amended assessments in relation to interest deductions claimed by the Company in respect of its TrUEPrS capital raising. The amount of primary tax, which relates to interest deductions in respect of the TrUEPrS capital raising for 1999 to 2003 is approximately $101 million.  Should the ATO issue amended assessments in respect of the TrUEPrS capital raising, it is possible that penalties and interest will apply.

The Company is confident that its position in relation to the application of the taxation law is correct and intends to lodge objections against any amended assessments received. The financial effect of the ATO position on this matter has not been brought to account in the financial statements for the year ended September 30, 2003. The possible liability existing whilst this issue is in dispute will be disclosed in the notes to the financial statements as a contingent liability.

New Zealand structured finance tax audit

A wholly owned subsidiary of the Company, BNZ Investments Limited together with some of its subsidiaries, is in a tax dispute process with the New Zealand Inland Revenue Department (IRD) with respect to certain structured finance transactions entered into in 1998 and 1999.  The Group has provided a formal response to the IRD's Notice of Proposed Adjustment and, as at March 23, 2004, is awaiting a response.  The IRD is also reviewing certain other transactions in the BNZ Investments Limited structured finance portfolio.  The amount of the amended assessments (if any) that the IRD may issue as a result of this process is uncertain at this time.  The Group is confident that its position in relation to the application of the taxation law is correct and it intends to dispute the IRD's position with respect to these transactions.  The financial effect of the IRD dispute process has not been brought to account in the financial statements for the year ended September 30, 2003.  The possible liability existing whilst this issue is in dispute will be disclosed in the notes to the financial statements as a contingent liability.

Securities and Exchange Commission voluntary document request

The Company has received a voluntary document request from the SEC in the US as part of an investigation into certain Australian registrants and public accounting firms. The document request covers the Company and controlled entities and includes issues relating to auditor independence. In addition, the Company has provided certain information to the SEC about the accounting and internal controls of the Company and its controlled entities, including the foreign currency options trading matter (refer above) and HomeSide US.

For a detailed discussion of the review of audit independence refer to 'Certain services provided by the external auditor – matters relating to independence' in the 'Business overview' section on page 17.

Credit Rating

On March 12, 2004 Standards and Poor's Ratings Service lowered its long-term counterparty credit rating on National Australia Bank Limited and related entities from AA to AA-.  Moody's Investors Service and Fitch Ratings both have re-affirmed the ratings at Aa3 and AA respectively.

Certain legal proceedings

A revised subsection has been inserted in the 'Business overview' section on page 17, as follows.

Entities within the Group are defendants from time to time in legal proceedings arising from the conduct of their business. 

On August 29, 2003, a civil class action complaint was filed in the US District Court, Southern District of New York, against the Group and others for alleged violations of the US federal securities law relating primarily to disclosure concerning the valuation of the mortgage servicing rights held by HomeSide US (sold in October 2002).  The complaint failed to specify any quantum of damages.  The plaintiffs in the complaint filed their consolidated amended class action complaint on January 30, 2004, and the Group moved to dismiss the consolidated amended class action complaint on March 11, 2004.  The court is expected to rule on the motion to dismiss later in the calendar year 2004.

The Group does not consider that the outcome of any proceedings, either individually or in aggregate, is likely to have a material effect on its financial position.  Where appropriate, provisions have been made.

Subsequent to September 30, 2003, the Company has received a voluntary document request from the SEC in the US as part of an investigation into certain Australian registrants and public accounting firms.  The document request covers the Company and controlled entities and includes issues relating to audit independence.  In addition, the Company has provided information about the accounting and internal controls of the Company and its controlled entities, including the foreign currency options trading matter (refer to the Report on the directors and officers – events subsequent to balance date page 74) and HomeSide US.

For further information on contingent liabilities of the Group, refer to note 45 in the financial report.

Certain services provided by the external auditor – matters relating to independence

A new subsection has been inserted in the 'Business overview' section on page 17.

Disclosure controls and procedures and internal control over financial reporting

A revised subsection has been inserted in the 'Financial review' section on page 57.

Further details are contained in the 'report on directors and officers - events subsequent to balance date' on page 74  within 'foreign currency option losses'.

Board changes

Subsequent to September 30, 2003, the following appointments were made: Mr John G Thorn as an independent non-executive director, Mr Graham J Kraehe as Chairman and Mr John M Stewart as Managing Director and Chief Executive Officer.  Also subsequent to September 30, 2003, the following resignations were received and accepted from Mr D Charles K Allen as Chairman and non-executive director and Mr Frank J Cicutto as Managing Director and Chief Executive Officer.

In March 2004 Mr Peter JB Duncan was appointed as Chairman of the Risk Committee, replacing Mr Graham J Kraehe, and Mr John G Thorn was appointed as Chairman of the Audit Committee, replacing Mrs Catherine M Walter.  Further, in March 2004 Dr Kenneth J Moss has been appointed as the Senior Independent Director in line with the best practice corporate governance model in the UK.

Directors' declaration

Included on page 197 of the annual financial report, this declaration has been removed as it is not required when filing an annual report on form 20-F.

Signatures

The registrant certifies that it meets all of the requirements for filing on form 20-F and it has duly caused and authorised the Secretary of the Company to sign this annual financial report on its behalf on page 219.

Form 20-F cross reference

A cross reference between the disclosures in the annual report on form 20-F and the requirements of the form 20-F has been included on page 220.