Financials hit after NAB makes $830m warning
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NAB shares plunged as much as 12.7 per cent. (AFP: Greg Wood, file photo)
Financial stocks are reeling today after the National Australia Bank (NAB) announced a surprise widening of its exposure to bad and risky debt.
NAB shares plunged as much as 12.7 per cent after confirming it had made an extra provision of $830 million in relation to a portfolio of collateralised debt obligations (CDOs) in the United States.
Today's fresh provision is in addition to the $181 million charge taken in the bank's first half results.
The collapse of risky mortgage based investments in the US subprime mortgage sector have resulted in writedowns of more than $240 billion for a range of banks around the world, including Citigroup, Merrill Lynch and Lehman Brothers.
Financial markets remain buffeted by the global credit crisis, sparked by the subprime meltdown, which is now about to enter its second year.
While the NAB's exposure to US subprime investments accounts for 2 per cent of the current provisions, NAB chief executive John Stewart predicted the wider situation would continue to deteriorate.
"We believe it is prudent to take a full provision now, based on a worst case scenario," Mr Stewart said.
At 12:40pm AEST, NAB shares had plunged 11 per cent to $27.05 setting the scene for heavy falls across the banking sector.
ANZ was down 7.7 per cent at $17.95, CBA down 5.8 per cent at $43.70, Westpac was down 4.8 per cent at $21.70 and St George Bank was down 4.6 per cent at $28.28.
The NAB warning also sent the All Ordinaries Index 2.8 per cent or 149 points lower to 5039.
The benchmark S&P/ASX 200 index fell 3.2 per cent or 166 points to 4977, ending two straight sessions of gains.
The financial services index, which had climbed a total of 9.3 per cent in the previous two sessions, dropped 5 per cent, logging its biggest one-day percentage fall in six months.
Mr Stewart said the need for widening provisions market had been highlighted in recent weeks, with rising foreclosures and recovery rates from some categories falling to less than half of the loan value.
"This provision reflects the unprecedented conditions in global credit markets and, in particular, the rapid deterioration in the United States housing market," he said.
Mr Stewart said a specialist team in New York was continuing to investigate ways of mitigating the losses.
Today's heavy falls were not isolated to the banking sector.
Firms exposed to the US economy fell after data showed sales of existing US homes dropped to a 10-year low.
The building material firm James Hardie Industries dropped 7.7 per cent to $4.59 and Westfield Group lost 6 per cent to A$16.43.
Mining firms fell after concerns about global demand weighed down on industrial metals including copper, nickel and zinc.
The world's biggest miner BHP Billiton fell 1.5 per cent to $36.96, while its main rival and takeover target, Rio Tinto, slipped 0.7 per cent to $114.41.
