Clydesdale owner admits £4.37bn accounts blunders

Published on Monday 27 February 2006 11:43

THE owner of the Clydesdale Bank today admitted that it had made a number of "classification errors" amounting to £4.37 billion in its 2005 annual report.

But National Australia Bank (NAB), which is headed by Scottish chief executive John Stewart, said the mistakes - described as "embarrassing" by analysts - did not change its earnings position for 2005.

The latest headline-grabber comes in the wake of several profit warnings, a high-profile robbery and a currency rogue trading scandal in early 2004 which cost the bank 150 million and led to the axing of three senior executives, including former then chief executive Frank Cicutto and five foreign currency traders.

Red-faced Mr Stewart, who took the reins at Australia's biggest bank in February 2004 in the wake of the sackings, put the discrepancies down to "human error".

"I'd be very surprised if anyone was sacked," said Mr Stewart. "What we will do is carry out a full investigation into how it happened. But I think this is probably a simple human error."

But he did not rule out the chances of any more mistakes being unearthed.

"We're on a turnaround. Parts of the bank are broken and we have to fix them," he said. "We are pretty sure the other numbers are right but, we keep saying, 'we don't know what we don't know'."

NAB - which in November 2005 announced it was closing 30 Clydesdale branches, including outlets at Morningside Road and Corstorphine as part of a cost-cutting drive - is still in the process of implementing recommendations from the country's financial watchdog after the 2004 trading fiasco which accountants PricewaterhouseCoopers (PwC) blamed on flawed systems and an aggressive trading culture at the bank, as well as the bank's board of directors.

It is also looking to cut staff numbers by around 4600 and recently sold its banking interests in Ireland, including the National Irish in Dublin and Belfast-based Northern Bank, which was robbed of 26.5m in December 2004.

According to NAB, the accounts for 2005 overstated the reported level of lending to the residential construction sector by 1.74bn and incorrectly reported 2.63bn of overdrafts to entities under instalment loans to individuals and other personal lending.

NAB director of finance and risk Michael Ullmer insisted that the core financial systems at NAB, which also owns the Yorkshire Bank and banks in New Zealand, were "sound and controlled effectively" and the total loan amount in the 2005 annual report was correct.

Mr Ullmer, who joined NAB in the wake of the trading scandal, said the bank was taking steps to remove its "significant over-reliance on manual processes".

Mr Stewart added: "As we improve our systems - which we're doing, every month they're getting better - things like this will be automated, and it won't happen."

JP Morgan analyst Brian Johnson said: "It's embarrassing and it does highlight the fact that there seem to be some real operational risk issues in NAB."