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Court urged to tell APRA to show documents

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LAWYERS for National Australia Bank shareholders have asked a judge to force the banking regulator to hand over documents it allegedly has about a probe into the bank's toxic US subprime mortgages.

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Law firm Maurice Blackburn is representing shareholders in a class action against NAB relating to the bank's heavy losses in 2008 over toxic US subprime home loans.

NAB in 2006 bought $A1.2 billion in collateralised debt obligations (CDOs) which were heavily exposed to the US subprime residential mortgage market which became toxic debt in 2007 and early 2008, according to the law firm.

NAB first made a $181 million provision for the CDO exposure in May 2008, then increased it to $1.1 billion, sending the company's share price plunging by nearly $6.00.

In the Supreme Court of Victoria before Justice Tony Pagone on Tuesday, counsel for the NAB shareholders, Michael Lee SC, said the documents sought from the Australian Prudential Regulation Authority (APRA) could be highly relevant at an upcoming trial scheduled for December.

However, APRA is objecting to handing over the documents because it claims that under legislation governing the watchdog it is preclude from producing documents in response to a subpoena sent to it.

In an affidavit of Maurice Blackburn solicitor Andrew Watson, dated August 31, 2012, which was tendered to the court, Mr Watson said the plaintiffs would contend at the trial that correspondence between APRA and NAB would provide insight into NAB's rating and provision process.

The affidavit says that on February 11, 2008, Michael Hamar, NAB's group chief risk officer, wrote an email to other nabCapital employees following a meeting with APRA.

The email referred to "conduits".

Mr Hamer said in the email that APRA employee Graham Johnson had made it clear that he thought that the bank had failed in its basic credit analysis and had been almost totally reliant on ratings and managers' reports.

"He (mr johnson) does not believe there has been adequate fundamental analysis on the underlying individual securities," Mr Hamar's email said.

In another email dated 12 February 2008 from nabCapital chief executive John Hooper to other nabCapital staff, Mr Hooper said it was clear that APRA felt the bank had been "slow on recognising provisions against conduit assets".

According to the affidavit, records of a teleconference between nabCapital and APRA on 26 February, 2008, reveal that APRA's's preliminary view was that the credit risk assessments underlying the bank's conduit exposures were "less extensive than expected".

APRA's Graham Johnson had expressed the view that the credit risk assessments appeared to be reliant on information and analysis provided by ratings agencies and/or conduit arrangers.

The preliminary hearing into disclosure of documents in relation to the trial continues.

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  • doyla66
    doyla66 Tuesday, 04 September 2012

    WOW If it is granted that will blow the dunny door off.

  • doyla66
    doyla66 Tuesday, 04 September 2012

    Hope so! We pay those nincompoops at APRA to do something useful with the concept of "prudent" bank behaviour - can't see what I've ever gotten for my money.

  • doyla66
    doyla66 Tuesday, 04 September 2012

    APRA's conflicted interests

    This case is exposing those conflicted interests APRA has in its role versus the role a publicly listed company on the ASX has with regards to disclosure. The sooner the better in my book.

  • doyla66
    doyla66 Wednesday, 19 September 2012

    It is time

    Exposure of the fat cat is essential!! The obvious conflict of interest should be exposed. Bring it on!

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