NAB warned by APRA before GFC
(6 September 2012 – Australia) The Australian Prudential Regulation Authority (APRA) repeatedly warned National Australia Bank (NAB) that its treatment of a bundle of toxic subprime investments was inadequate according to an affidavit tendered to the Victorian Supreme Court this week.
As the GFC struck in 2008 NAB had to write-down the value of a parcel of collateralised debt obligations (CDO) twice in the space of three months, losing A$1 billion from its bottom line.
In the class action brought by NAB shareholders, court documents show that the APRA raised concerns about the treatment of the CDOs in January 2008.
The affidavit, sworn by solicitor for the shareholders Andrew Watson, of Maurice Blackburn, includes excerpts from internal NAB emails discussing the bank's dealings with the regulator.
In February 2008, NAB group chief risk officer Michael Hamar sent an internal email saying APRA felt the bank ''failed in our basic credit analysis'' of the CDOs.
At a meeting with the bank, APRA officer Graham Johnson said NAB was ''almost totally reliant on ratings and on managers' reports'', Hamar said.
John Hooper, chief executive of wholesale division nabCapital, told staff there had been four discussions with APRA on the CDOs, also known as ''conduits'', in early February.
''From these meetings it was clear that APRA felt we had been slow on recognising provisions against conduit assets,'' Hooper said in an email to other nabCapital staff.
On Tuesday, APRA asked the court to set aside a subpoena forcing it to produce records of its dealings with NAB over the CDOs, saying secrecy provisions in the APRA Act made it a crime.
Counsel for the shareholders Michael Lee, SC, said APRA could authorise its staff to release the information.
Justice Tony Pagone has reserved his decision.
In the class action brought by NAB shareholders, court documents show that the APRA raised concerns about the treatment of the CDOs in January 2008.
The affidavit, sworn by solicitor for the shareholders Andrew Watson, of Maurice Blackburn, includes excerpts from internal NAB emails discussing the bank's dealings with the regulator.
In February 2008, NAB group chief risk officer Michael Hamar sent an internal email saying APRA felt the bank ''failed in our basic credit analysis'' of the CDOs.
At a meeting with the bank, APRA officer Graham Johnson said NAB was ''almost totally reliant on ratings and on managers' reports'', Hamar said.
John Hooper, chief executive of wholesale division nabCapital, told staff there had been four discussions with APRA on the CDOs, also known as ''conduits'', in early February.
''From these meetings it was clear that APRA felt we had been slow on recognising provisions against conduit assets,'' Hooper said in an email to other nabCapital staff.
On Tuesday, APRA asked the court to set aside a subpoena forcing it to produce records of its dealings with NAB over the CDOs, saying secrecy provisions in the APRA Act made it a crime.
Counsel for the shareholders Michael Lee, SC, said APRA could authorise its staff to release the information.
Justice Tony Pagone has reserved his decision.
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