How Nab's American Odyssey Cost It $6.7 Billion
Sydney Morning Herald
Tuesday September 4, 2001
A crushing $6.7 billion was wiped off the value of Australia's biggest bank yesterday when the NAB disclosed massive losses on a risky mortgage operation in the United States.
In its worst sharemarket tumble since the 1987 crash, the National Australia Bank's shares fell $4.30, or 13 per cent, to $28.90.
The bank's full-year profit, to be announced in November, will be marred by nearly $4 billion in losses relating to its US mortgage ``servicing" arm, HomeSide Lending.
HomeSide failed to protect itself from a series of official interest rate cuts in the US.
The NAB's chief executive, Mr Frank Cicutto, admitted at a news conference that the losses were a ``disaster" but rejected a suggestion that he should resign.
The losses underscore the failure of many of Australia's best companies, including BHP and the ANZ, to make profits in offshore moves.
They are also an embarrassment to Mr Don Argus, who was NAB's managing director at the time of the ill-fated purchase of HomeSide in 1998. He also led the controversial moves by BHP and Brambles, two of Australia's largest companies, to merge with international companies.
NAB has several other problems, including exposure to bad debts. This includes a reputed $400 million lending exposure to the troubled miner Pasminco.
NAB's chairman, Mr Mark Rayner, has stood down over Pasminco, given his association with the miner.
The technology developer Mr John Maconochie is also involved in litigation with the bank that has already cost NAB at least $40 million in about two years.
UBS Warburg's banking analyst, Mr James Ellis, said the HomeSide losses were a shock to investors and the share price tumble implied that they believed more losses were possible and management's credibility had been stung.
Investors now wanted the bank to assure the market that there would be no more losses, something it could achieve by quickly selling HomeSide.
Seven falls this year in official interest rates in the US have put pressure on companies that administer mortgages and bundle them up to sell to investors because borrowers have used the rate cuts to cheaply refinance loans with other lenders.
* NAB takes a bath Page 21
© 2001 Sydney Morning Herald