National Australia Bank writes down 90% of US AAA CDOs

[ladelfina]

brewer will say that this is all in my head:

NAB in dire US warning | theage.com.au

Bad debt bombshell from National Australia Bank | Herald Sun

This is Australia's largest bank.

[Breitling]

Wow... 90%?!

[Westernskies]

Crikey! only 90%?

[FUEGO]

Why not just write them down 100% and just go ahead and sell them to me for the cost of postage?

[brewer12345]

Quote:

Originally Posted by FUEGO Why not just write them down 100% and just go ahead and sell them to me for the cost of postage?

Because then they cannot write them back up when/if things improve.

[FinanceDude]

Where's the crocodile hunter when we need him??

"Crikey, I'd rather hunt the world's most venemous snakes than invest in sub-prime US debt".........

[Bestwifeever]

Convenient scapegoat (did someone hold a gun to NAB's head to buy those securities? No sympathy for them here). Maybe the real headline should be "NAB: It's not our fault!"

[FUEGO]

Brewer, what's your take on this. I think many banks are lumping. By lumping, I mean they are getting all the horrible news about write-downs out in one quarter. Then, if things get better in a quarter or two, they write back up and record huge profits. Is this just another form of revenue shaping with the plausible deniability of "well, we really didn't know how bad it really was". But in reality, the upper echelons are telling their in-house analysts to make the debt look as bad as possible?

[FinanceDude]

Quote:

Originally Posted by FUEGO Brewer, what's your take on this. I think many banks are lumping. By lumping, I mean they are getting all the horrible news about write-downs out in one quarter. Then, if things get better in a quarter or two, they write back up and record huge profits. Is this just another form of revenue shaping with the plausible deniability of "well, we really didn't know how bad it really was". But in reality, the upper echelons are telling their in-house analysts to make the debt look as bad as possible?

Quit being so smart...........with that intelligence you'll NEVER make it on Wall Street..........

[ladelfina]

Quote:

But Mr Stewart said it was clear that the rating agencies that had assigned the CDOs AAA status had "let the whole industry down". "(They) didn't do a thorough job," Mr Stewart said. Somewhat ironically, rating agency Standard & Poor's yesterday downgraded its AAA outlook on NAB to negative from stable. "Apart from emphasising the potential for higher-credit costs, the announcement highlights that NAB may face challenges in predicting future credit losses," said S&P credit analyst Sharad Jain.

SNAP!

Wow.. that sounds essentially vengeful. "You don't like our AAA ratings? Ok.. let's see how you like life without one.. bwa ha aha ha haaa."

Since they don't like the predictions they are given.. they must have trouble HEARING!
Yikes.

[brewer12345]

Quote:

Originally Posted by FUEGO Brewer, what's your take on this. I think many banks are lumping. By lumping, I mean they are getting all the horrible news about write-downs out in one quarter. Then, if things get better in a quarter or two, they write back up and record huge profits. Is this just another form of revenue shaping with the plausible deniability of "well, we really didn't know how bad it really was". But in reality, the upper echelons are telling their in-house analysts to make the debt look as bad as possible?

Maybe. The problem all along with all of these write downs is that in many cases there is no real market quote on which to base valuations. All this paper was flying around at record speed in the first half of 2007, and then everything came crashing to a halt with no trades except ones by those who were forced (because of liquidity issues) to sell in a no-bid market. So if you ae being pushed by regulators, auditors, etc. to mark stuff down, what do you use to mark the paper? Iffy trading data? Or do you try to mark it based on fundamentals, even though you very possibly never understood what you owned in the first place?

In this specific case, it sounds like these securities are the infamous CDO squareds, where you have bonds backed by bonds backed by mortgages. The underlying mortgages may have been an immense amount of collateral (tens of billions of dollars), more than anyone buying the CDO squareds could possibly have rationally evaluated before buying the bonds. So idiots like the guys at NAB just looked at the rating, said "AAA, how can I lose?", and started buying.

So it will be interesting to see what happens. For sure, many of the write-downs will prove to be waaaayyyyy over what is really justified and will be a source of outsized profits in the future. Others, not so much. WIthout knowing more about the exact securities in question, I cannot sayin this case.

[FUEGO]

Quote:

Originally Posted by brewer12345 Others, not so much. WIthout knowing more about the exact securities in question, I cannot sayin this case.

It's all speculation on my behalf as well. Just knowing how things work (with quarterly reporting) makes one wonder if they aren't writing off as much as plausible last Q and this Q in order to make returning to profitability a lot easier next Q or the following Q. I mean, who really cares is a megabank writes off $20 billion or $26 billion one quarter. If they are losing money anyway, why not toss out an extra $6 billion loss (on paper) and then bank it back over the next year or two as your positions "recover".

[brewer12345]

Quote:

Originally Posted by FUEGO It's all speculation on my behalf as well. Just knowing how things work (with quarterly reporting) makes one wonder if they aren't writing off as much as plausible last Q and this Q in order to make returning to profitability a lot easier next Q or the following Q. I mean, who really cares is a megabank writes off $20 billion or $26 billion one quarter. If they are losing money anyway, why not toss out an extra $6 billion loss (on paper) and then bank it back over the next year or two as your positions "recover".

It is certainly what I would do if I ran one of these things.

[FUEGO]

Quote:

Originally Posted by brewer12345 It is certainly what I would do if I ran one of these things.

As a buyer of these, I've placed my bet that that is what smart managers will do as well. Now comes the waiting game to see how right/wrong I am.

[ziggy29]

When you know a quarter's going to be bad, you might as well make it as bad as you can this quarter and draw all the future pain into it. In terms of market perception, better to have one quarter with huge writedowns than several quarters of water torture-style, more moderate losses. Businesses do this all the time when they are going to post a losing quarter.

[FUEGO]

Quote:

Originally Posted by ziggy29 When you know a quarter's going to be bad, you might as well make it as bad as you can this quarter and draw all the future pain into it. In terms of market perception, better to have one quarter with huge writedowns than several quarters of water torture-style, more moderate losses. Businesses do this all the time when they are going to post a losing quarter.

My thoughts exactly.