NAB on the nose, CEO old or new

In other debt issuance activity last week, NAB suffered the ignominy of having 70 per cent of investors who had taken up its $850 million bond issue the week before, opt out of the issue after it announced its $830 million of provisions for CDO exposure. The two tranche, three year bond issue was reduced to $90 million on the fixed rate tranche and $170 million on the floating. Pricing remained at 90bps over bank bills/swap. It is unlikely that the bank will achieve pricing of 90bps when it tries to replenish the shortfall.

HSBC Australia made two private placements during the week, raising $200 million for 15 months and $100 million for 18 months. The latter will pay 45bps over bank bills.

Offshore, the CBA raised NZ$100 million for two years in the Euromarket, while in the New Zealand domestic market Toyota Finance New Zealand raised NZ$50 million for three years at 19bps over bank bills/swap. Toyota is 'AAA' rated.     
Meanwhile, on the ratings front, nearly all the action last week continued to be centred on the on-going fallout from the credit crunch.

Among other banks, ANZ provided the colour at the start of last week. ANZ followed NAB's lead from the week before, with the announcement of its own increased bad debt provisioning to around $1.2 billion for the second half of 2008.

This prompted a slightly different response from the rating agencies to the one that NAB received. All affirmed ANZ's (AA/Aa1/AA-) ratings and stable outlook.

The week before, Standard & Poor's moved NAB's rating outlook to negative and Moody's Investors Service said it would consider NAB's position and issue a further comment (see below). Only FitchRatings affirmed NAB's ratings.

On ANZ, S&P noted that it does not expect any significant increase in ANZ's credit losses for the remainder of the fiscal year (it does not hold this view on NAB). S&P went on to say that it believes ANZ has thoroughly reviewed its credit exposures across all classes and regions and the increase in credit losses is within expectations for the rating, but warned that the buffer to absorb further losses has been significantly eroded. The comments from Moody's and Fitch largely echoed those of S&P.

S&P also announced that it had reviewed the likely credit losses of the Commonwealth Bank of Australia and Westpac Banking Corporation over the short to medium term and concluded that losses will remain in line with expectations.

Moody's on Friday followed S&P and amended the outlook for NAB. Moody's rate NAB 'Aa1' for senior debt and 'B' for bank financial strength. The outlook for each rating is now negative. Moody's said that "the negative outlook reflects both the potential impact of weaker credit conditions in NAB's core geographies, as well as ongoing dislocations in credit markets".

The agency went on to note that NAB does not compare favourably with its peers in a number of key areas, including risk adjusted profitability; corporate sector and business banking exposure; single name corporate concentrations; and committed credit facilities relative to funding.