I am not suggesting all CDO’s are worth 10 cents on the dollar, but this is sounding like the most realistic loss estimate to date. It’s no wonder why the banks have done everything possible to hide these losses and keep the bond insurers afloat.
To be specific, the securities in question consist of 10 CDOs of which two are ‘super senior’ strips and eight are ‘AAA’ senior strips. This means NAB is expecting 100 per cent loss on $900 million worth of AAA rated securities!
NAB’s drastic mark could have serious consequences for those holding similar paper. This could turn out to be a big story. Heck, it could put the monolines under in a minute.
I am sure this news will be swept under the carpet, as bubblevision and the rest of the media try to focus on the SEC’s Cox who said late yesterday he wanted to incorporate the new SEC short selling rules across THE ENTIRE MARKET. What this tells me, however, is that the US equities market sit in a much more precarious position than most can imagine.
Keep an eye out for spill over from this CDO story. This could be a biggie. Or, you will just see the bank’s Level 3 (mark-to-myth) ‘asset’ levels surge in Q3. – Best, Mr Mortgage
July 25 (Bloomberg) — National Australia Bank Ltd., the country’s biggest, set aside A$830 million ($795 million) for credit market losses, triggering the steepest decline in its stock in seven years.
National Australia made provisions equivalent to 90 percent of the value of its A$1.2 billion of collateralized debt obligations. The Melbourne-based bank set aside a A$181 million provision in March.
Chief Executive Officer John Stewart said mounting foreclosures in the U.S., where falling home sales yesterday sent financial shares to their worst drop in eight years, is eroding the value of the investments. Bad debts at the bank jumped 86 percent last year as Australia’s 16-year economic expansion falters and interest rates rise amid accelerating inflation.
“There’s a lack of trust at this stage,” said Nader Naeimi, a Sydney-based investment strategist at AMP Capital Investors, which manages $108 billion. “The fear is there’s a lot more bad news to come. Investors are out there thinking everything’s fine and another bank comes out and increases its provision for credit-related losses.”