Australia's NAB takes $800 mln hit from U.S. debt

By Denny Thomas

SYDNEY (Reuters) - National Australia Bank Ltd (NAB.AX) (NAB), the nation's top lender, booked another A$830 million ($798 million) in losses from its exposure to U.S. mortgages, sending its shares down as much as 15 percent.

NAB blamed the worsening global credit squeeze for the higher provisions and said it had now set aside enough to cover nearly 90 percent of its total asset-backed collateralized debt obligations (CDOs) portfolio, but some investors reacted angrily.

"One hopes there is nothing more lurking," said Eric Betts, equities strategist at Nomura Australia.

NAB insisted the write-off was based on a worst-case scenario of what it said was a "meltdown" of the U.S. mortgage market, but fund managers turned on management at a briefing and questioned the rest of the bank's securitized assets.

"This incident is a direct result of the meltdown going on in the U.S. housing market. (That) has been further highlighted in recent weeks with foreclosures mounting and recovery rates from securities in some categories falling to less than half of the loan value," Chief Executive John Stewart told a briefing.

"It's very hard to say to people that buying 'AAA' assets was reckless," Stewart said, referring to how even some of the highest-quality rated debt securities have succumbed to the property credit crisis.

"If we wouldn't invest in 'AAA' assets, then quite frankly we wouldn't invest in any Australian company, we wouldn't lend to any of them."

NAB said it expects a profit impact of just under A$600 million from the provision, which could wipe out nearly a quarter of its second-half earnings based on market expectations. Ahead of Friday's announcement, analysts had estimated NAB would earn core second-half profit of about A$2.25 billion.

But NAB said its final dividend would not be affected by the new provision and that it would stick to a payout ratio of around 70 percent of earnings. Investors have been lured to Australian banks due to their attractive dividend yields.

NAB shares fell as much as 14.6 percent to A$26.22 before ending down 13.5 percent, their biggest one-day percentage fall since October 1987. That compared with a 3.4 percent fall in the wider market .AXJO.

"It's certainly very disappointing in light of what we were told at the half-year results," said Mark Nathan, fund manager with Fortis Investment Partners, before a highly charged briefing where analysts repeatedly questioned the bank's asset quality.

Australian banks have largely avoided the worst of the global credit crisis but bad-debt charges are rising as many highly geared Australian firms have struggled to refinance their debts and economic growth is expected to slow.

NAB assured investors that its other businesses were faring well.

"The reliasable value of many (U.S.) houses is about 45 percent of the mortgage," Mark Joiner, NAB's Group Chief Financial Officer told an analysts briefing.

"We are not going to hit a panic button and assume that Aussie houses sell at 50 percent of their value."