nab speaks..

National Australia
Bank Limited
ABN 12004044937
DCK Allen AO
Chairman
500 Bourke Street
Melbourne
Victoria 3000
Australia
21 January 2004
Dear Shareholder
I am writing on behalf of the Board of Directors to provide you with a direct
explanation about unauthorised foreign currency options trading within the National
and what we are doing to ensure it does not happen again.
Since we made an announcement about this matter last week there has been a
considerable amount of ill-informed comment and speculation. Your Directors are
keen to ensure you have all the facts currently available.
The key developments in this matter are:
– foreign currency traders incurred losses in their options portfolio and sought
to hide such losses by recording fictitious trades in our systems. We believe
this element of the problem has been fully identified. The losses incurred by
the traders have been identified at A$185 million.
– having identified the fictitious trades and removed them from our systems, we
considered it would be prudent to undertake a complete revaluation of the
remaining foreign currency portfolio to ensure it is appropriately and
conservatively valued. This involves a careful examination of thousands of
transactions.
– we have identified that some additional losses will arise but the full extent of
such additional losses will not be known for several days. Based on our work
to date, we caution shareholders against acting on any media speculation
about this matter. We will advise shareholders as soon as the full extent of
the revaluation is known.
The Directors and executive management are extremely disappointed by the news of
this breach of internal policies and procedures. We have established a structured
process to review and resolve all of the issues arising from this matter.
The Australian Stock Exchange and all relevant regulatory authorities were advised.
We also sent a formal reference to the Australian Federal Police so that they could
evaluate whether any criminal charges should be brought against those involved.
2
Four members of the foreign currency options trading desk involved in this matter
were suspended pending the outcome of the internal investigation and external
inquiries and we took appropriate steps to manage the options trading position.
An independent investigation by PricewaterhouseCoopers has been commissioned
to determine what happened and how it occurred.
The Board will closely monitor the internal and external investigations, and the Risk
Committee, chaired by Mr Graham Kraehe, will receive regular management updates
and reports from the independent investigator, PricewaterhouseCoopers. The results
of this independent investigation will be made public.
We will continue to update you and the broader community as developments arise.
At this early stage, we expect to release the outcomes of the investigation by the end
of February.
In the interim, copies of the National’s announcements on this matter are available to
you on the National’s website www.nabgroup.com or can be obtained from the Office
of the Company Secretary by telephoning (from outside Australia 613) (from outside
Victoria 03) 8641 4170.
In conclusion, I can assure shareholders that this matter is confined to a small part of
the National’s operations and that it will not affect our overall business nor our
customers.
I can also assure shareholders that the Board will take whatever action is necessary
to ensure that you, our shareholders, customers and staff can have full confidence in
the National.
Yours sincerely
DCK ALLEN
Chairman