DOMINO'S SET IN MOTION

**YELNICK BOY'S<> YOU STILL WITH ME??

from my friend Pieter **(FNM bailout just a part of the falling D's)


Aussie Bank writes down CDO's by 90% - what if the rest of the world follows ?

barracuda - Fri, Jul 25, 2008 - 03:42 AM Apocalypse NAB by Alan Kohler

> * 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. > > This is based on the information revealed this morning by John Stewart > - namely, that recoveries on US residential foreclosures is now down > to 45 per cent of the mortgage value. > > Just consider that: US lenders, when they take possession of homes in > foreclosure, are recovering less than half of the mortgage. > > I have been reading voraciously on the subject, and that is the first > time I have seen any bank disclosing that. > > The implication of that for the US banking system is catastrophic. > > This little Aussie bank down under has gone too far, they'll be saying > on Wall Street. They're wearing the full hair-shirt and suffering the > bed of nails all at once, only because they can - they have the > capital to do it. > > John Stewart said this morning that he didn't want to drip feed the > provisions out over several years as the truth about the situation in > the US unfolds; far better, he says, to take it all now and move on. > > But there is a big problem with that approach: if other banks are > forced to do it, especially the big US banks, the economic impact will > be swift and drastic. The $4.5 billion that NAB holds in other > securities through its off-balance sheet conduits, will also be hit. > > But Stewart and Chaney have pulled the pin out of a grenade; there's > no going back now.