NAB hit by HomeSide slide

By Phil Boeyen, ShareChat Business News Editor

Monday 3rd September 2001

BNZ parent, National Australia Bank, is planning to further writedown the value of its US HomeSide Lending business by A$3 billion.

The bank says the provision follows a decision to value HomeSide at estimated market sale value rather than as an ongoing part of the group.

The writedown includes A$755 million from the discovery at the weekend of an incorrect interest rate assumption in the mortgage servicing rights valuation model and A$858 million in a goodwill writeoff.

NAB says on a pro forma basis the value of the mortgage servicing rights asset falls from around A$8.3 billion to A$6.1 billion.

The latest news follows a writedown of A$568 million in July. At the time the bank said there had been unprecedented refinancing in the US mortgage market following 6 rate cuts in 6 months, which reduced the future income from HomeSide's mortgage servicing portfolio.

NAB chief Frank Cicutto, says the bank began an analysis of its strategic options for HomeSide several weeks ago and engaged a US consultant to complete a detailed review of the estimated market sale value of the business.

On Saturday HomeSide management told the bank about the incorrect interest rate assumption and the need for other changed assumptions as part of the work being undertaken with the consultant.

The bank's board met yesterday to consider the new information and decided that the business should be valued at estimated market sale value.

Mr Cicutto says if the profit on the sale of Michigan National and the writeoffs associated with HomeSide are taken into account, the underlying cash earnings per share of the group are still expected to grow by 10% in the current financial year.

"It is the board's expectation to pay a dividend in December at least equal to the amount per share paid for the first half of this year."

However the bank's shares have taken an early morning hit in Australian trade, dropping around 10% in value.

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