It Could Get Worse, Warns Nab Boss

Sydney Morning Herald

Monday August 4, 2008

Danny John

NATIONAL Australia Bank's chairman, Michael Chaney, yesterday warned the global credit crisis may again take a turn for the worst, but rejected any need for a downgrade in the bank's credit rating.

Mr Chaney said the situation was "very concerning" after a rapid deterioration in US credit markets last month following a period of relative stability.

Global markets experienced a sharp rise in financing costs from January onwards - an increase which had appeared to have peaked in March this year.

"Where it goes from here, we'll have to wait and see. It's possible the situation will get quite a bit worse [in credit markets]," Mr Chaney told the ABC.

He was speaking after a tumultuous period for the bank, including the appointment of its New Zealand boss, Cameron Clyne, to replace the retiring John Stewart and a $830 million write-down of mortgage-related losses related to the US subprime housing loan debacle.

The increased charge against the bank's 2008 profits was made as a result of a "very fast" change in US financial markets and a drop in "tolerance" among investors for those types of loans and investments, Mr Chaney said.

The two big credit rating agencies - Standard & Poor's and Moody's - have placed the bank's double-A credit ranking on negative watch, which could lead to it being downgraded.

Such a step would be "inappropriate", Mr Chaney said.

"Things are going extremely well, but that's a matter for us to sit down and talk to the ratings agencies and to assure them that's the case."

The bank has sought to quarantine its loan exposures through the channel of collaterised debt obligation investments by taking a provision of $1 billion over the $1.2 billion portfolio.