just in in-tray
player #1:
Apocalypse NAB
John Stewart and Michael Chaney’s decision to go straight to 90 per cent provisioning on National Australia Bank’s portfolio of US residential mortgage-backed securities (RMBS) is a shocking event that will reverberate around the world.
The CEO and chairman of NAB will live with the consequences of their decision as it affects their own bank, but so will every other banker on the planet.
NAB’s exposure to the US property market through the CDOs held in its conduits is relatively small – $1.2 billion worth of structured finance assets. The money is in 10 collateralised debt obligations (CDOs) in two conduits (off balance sheet vehicles to which NAB provides “liquidity”).
Leaving aside the dodgy nature of the vehicles, the assets themselves were all rated AAA, which technically means a one in 10,000 chance of default.
Stewart, Chaney and the NAB risk committee have now assessed the prospect of loss at 90 per cent, that is a 9,000 in 10,000 chance of default. In other words, the securities have turned out to be far worse than junk.
To be specific, the 10 CDOs consist of two “super senior” strips and eight AAA senior strips. The NAB brains trust has now determined, on a worst case basis, that it will recover half of the super senior CDOs and none of the AAA senior debt.
To repeat: NAB is now expecting 100 per cent loss on $900 million worth of AAA rated debt securities.
player #2
in other words, NAB can 'afford' to admit to the true value of the structured garbage it owns because it is lucky to own so little of it. anyway, this gives us a rough idea what state the banking system at large is really in - a state which is by implication shared by the Fed actually, since its balance sheet is now likewise stuffed with similar dreck - even though everybody involved swears on their mother's grave it's all 'AAA' and it's only 'temporary'.
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