buy, page-68

They wouldn't make provisions against something that hadn't at the time declined in value. A lot has been made (especially by Michael West) about this $1.6 billion corporate CDO exposure. To trigger a write-down that big would require a 6% rate of corporate credit delinquency across the portfolio. For perspective the average rate of delinquency across all corporations is 1.6% in most recent quarter. I am guessing that the corporations NAB is covering have better than average credit risk.

It seems to me extremely unlikely that this event would ever be triggered (barring a global depression scenario), but the mark to market (or model) price of the CDO may suggest the asset value is lower. IMO it would be wrong to insist they made a provision for this and this is the kind of excessive risk avoidance that has exacerbated the credit crunch.

Still the press likes a good doom and gloom story and the market needs a whipping boy in the sector so I will wait a little bit before topping up on this one.