21jan04 SHARES in the National Australia Bank fell to a seven-week low today, as brokers questioned the bank's leadership in relation to the currency scandal.
The shares tumbled as much as 48c and were 32c, or 1 per cent lower at $29.24 at 10.28am (AEDT), falling to $29.15 in afternoon trade.
Bloomberg reported today that Morgan Stanley slashed the bank's per share earnings forecast for 2004 by 5 per cent as a result of the currency trading losses. It also cut its share price forecast on NAB by 48c to $33.89, without nominating a time frame for the shift in the stock.
Elsewhere in the banking sector, the Commonwealth Bank of Australia was 17c firmer at $30.62, Westpac Banking Corp was up 10c at $16.45 and ANZ rose 2c to $17.73.
Most major brokerages have questioned the credibility of the bank's senior management, including its chief executive Frank Cicutto, after it revealed on Monday that losses from months of unauthorised currency option trades could potentially amount to $600 million.
The bank initially said it expected losses of $180 million when it first revealed the illicit trades and suspended four traders over the affair last Tuesday.
Newspaper reports today alleged that the bank knew of "interesting" trading activity at its foreign exchange options dealing room two years ago, and that rival currency trading operations had raised concerns about the bank's currency position.
Brokerage houses have downgraded NAB's earnings estimates on the back of lower income derived from trading. This comes despite's Mr Cicutto's statement that the bank would stay in its $253 billion options trading activity, which is expected to be curtailed.
Ratings house Fitch also warned yesterday that NAB's credit rating could be cut.
"You can't pass the buck down the line, it's got to be passed up the line," Macquarie Equities private client adviser David Halliday said, adding the bank's senior management was being held increasingly accountable for a string of mishaps.
"Investors are ... starting to tire of these continual mistakes and glitches and slip-ups at NAB that don't at the moment appear to be apparent in any of the other large three or four banks in Australia."
He said souring sentiment was behind a week-long slump in the bank's shares, rather than financial implications, although the losses are likely to cancel out the bank's forecast earnings growth for 2003/04.
"I certainly don't think it's valuation based. Most of it is to do with sentiment," he said.
"As things become more and more clear about the extent of the losses and indeed the fall down in the risk management system, the more fingers are being pointed towards the leadership of the bank to take responsibility for it.
"The focus is shifting away from blaming a couple of rogues within the organisation to maybe seeing that the risk management processes weren't as robust as they otherwise might have been."
The foreign traders' losses began to mount when they unsuccessfully bet that the Australian and New Zealand currencies would fall against the US dollar.
A colleague, and not the bank's internal controls, detected the irregularities, raising questions about NAB's risk management procedures.
Suspended chief dealer of the foreign exchange options team, David Bullen, 32, claims the bank was aware his team was breaching risk levels.
Analysts at Deutsche Bank also believe Cicutto's "job at the top is looking increasingly shaky".
They said the CEO was under "increasing pressure from the board to explain his involvement/knowledge of the rogue forex trading losses".
The bank has ordered an external audit while the Australian Prudential and Regulatory Authority and the Australian Federal Police are also investigating.
Analysts at Credit Suisse First Boston said NAB's initial statements did not "explicitly acknowledge" that further losses could arise.
"To this extent, loss of confidence in NABs risk management within the market could be further entrenched," they said in a statement.
UBS analysts questioned whether NAB had been investing enough in its risk management systems.
Shaw Stockbroking analyst David McDonald said the problem the market has with NAB is that it appears to have more risk management issues than other banks.
"It doesn't look as if it's a big deal at these levels but it's always the risk of something blowing up in the future," he said. "It's good that they've nipped it in the bud now but you never know what is down the track and NAB just seem to have a bit worse of a track record in these sorts of issues."
Analysts said concern in the market coupled with some costly business blunders may see the bank's board force a reshuffle in the senior management.
Over the past three years NAB has lost $US3.6 billion dollars over US homelender HomeSide, $US64 million dollars from unit trust pricing errors and been sued for $US66 million dollars by fraud victims in South Korea.
AAP, Agence France-Presse
NAB Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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