NAB ‘facing’ $1.5 billion CDS bad debt provision
National Australia Bank (NAB) could book $1.5 billion in bad debt provisions against its corporate credit default swaps (CDSs) in the 2009 financial year, according to Austock Securities Research.
The researcher said yesterday it has reduced its 2009 financial year earnings per share on NAB by 16 per cent to $2.45 per share on expectations of increased bad debt provisions against NAB’s corporate CDSs.
Its dividend forecast for financial year 2009 has also been lowered to $1.90 a share, which is flat on financial year 2008.
Austock bases its bad debt provision forecast on the unhedged sale by NAB of $1.57 billion in CDSs, maturing in 2013-14, over a basket of global companies.
If defaults in the basket exceed -8 per cent over the life of the CDS, NAB will lose $1.57 billion, it said, adding that the six year default rate reached 12-13 per cent in the last two global recessions in 1990-92 and 2001-03 respectively.
“OECD leading indicators suggest another global recession is likely in 2008-10,” making global company defaults in the next six years likely to exceed NAB’s CDS loss threshold.
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