MARKET CRISIS NAB defends risk assessed on toxic CDOs October 13, 2008 AP
National Australia Bank Ltd (NAB) will fight claims by a shareholder group that a senior board member should be dumped over the poor risk management of $4.5 billion of toxic asset backed securities.
The Australian Shareholders' Association (ASA) is rallying shareholder support to dump NAB's risk committee chairman Paul Rizzo over what it says is the bank's failure to properly oversee the risk management of its $4.5 billion exposure to collateralised debt obligations (CDOs) partly linked to risky US sub-prime mortgages.
The ASA is seeking the support to pass a resolution to dump Mr Rizzo at the bank's annual general meeting on December 18.
"NAB will be fully rebutting the ASA's claims in its notice of meeting for the 2008 annual general meeting," NAB spokeswoman Kerrina Lawrence told AAP.
The bank took a $1 billion charge in May and July because of the toxic portfolio.
NAB on its September 30 balance date announced a further $400 million hit - spread over 10 years - to its cash earnings from long-term hedges to reduce risks of further writedowns associated with its $1.57 billion synthetic collateralised debt obligation portfolio.
NAB Friday described the ASA's move to remove Mr Rizzo as disappointing and irrelevant since neither the bank's board nor its risk committee approved the CDO investments made in August 2006.
"The board and risk committee didn't approve these CDO investments. It was a management decision," Ms Lawrence said.
NAB refuted the ASA's claims that it did not make any independent assessment of the risks surrounding the CDOs and relied upon the instruments' AAA ratings from global ratings agency Standard & Poor's (S&P).
"When NAB decided to provide liquidity and financing for its portfolio of CDOs of asset backed securities, the bank applied its own analysis and also used market rating information which rated the assets as AAA and its AAA rating is higher than the credit rating of Australia's biggest corporations," Ms Lawrence said.
"It's both misdirected and misguided to personally attack Paul Rizzo who is an exceptional director and as chairman of the risk committee has committed significantly to the improvement on risk management activity throughout his time at NAB Group.
ASA chairman John Curry said the move was symbolic.
"We're not saying Paul Rizzo is a poor manager or an unintelligent person. What we're saying is that someone should say we are accountable. At this stage no one has said they're accountable for the losses," he said.
Mr Rizzo became chairman of NAB's Principal Board Risk Committee on July 5, 2006 upon the retirement of Robert Elstone from the role and the latter's appointment as managing director and chief executive of the Australian Securities Exchange.
Mr Curry says after three attempts by the bank at "getting this right" there are still securities in the portfolio for which the bank has made no provisions suggesting the risk management committee is not doing its job.
The bank will report its 2008 earnings on October 31.
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