NAB takes billion-dollar hit

By Phil Boeyen, ShareChat Business News Editor

Thursday 5th July 2001

Bank of New Zealand owner, the National Australia Bank (NZSE: NAB), has announced a $1.1 billion writedown of its US mortgaging business.

The bank is writing down the balance sheet value of the mortgaging rights held by its subsidiary, HomeSide Lending, after being hit by a combination of factors including refinancing movements and interest rate volatility.

NAB says there has been unprecedented refinancing in the US mortgage market following 6 rate cuts in 6 months, which has reduced the future income from HomeSide's mortgage servicing portfolio.

Volatility in interest rate markets have adversely impacted the subsidiary's hedging positions, and the bank says it has also been hurt by changes to industry and market forces following new accounting standards.

"In this environment HomeSide's previously successful risk management systems were not fully effective," the bank says in a statement.

"The size of this provision is a very prudent response to the current volatile environment as well as possible future deterioration."

The provision, which is around $700 million in after-tax dollars, represents about 10% of the current book value of the mortgage servicing rights held by HomeSide and 0.2% of the National's group balance sheet assets.

MD Frank Cicutto has moved quickly to allay investors concerns over the writedown.

"Our underlying business is strong and performing well. We are still on track for cash earnings per share growth in excess of 10%, when we offset the HomeSide provision with the after tax profit of A$1.6 billion from the sale of Michigan National."

Despite the HomeSide provision NAB says it is still confident of delivery a record full year profit.

The bank bought HomeSide in 1998 for US$1.2 billion. The lender has a mortgage servicing book of US$187 billion and is the sixth largest mortgage provider in the US.

Comments from our readers

No comments yet