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Aussie banks share prices plummet -

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KERRY O'BRIEN, PRESENTER: First to the latest upheaval in Australian banking.

And although we've been told constantly since the US sub-prime crisis began to unfold that
Australian banks were largely quarantined from America's banking disasters, the statistics here are
becoming more and more dramatic.

ANZ's share price dropped by nearly 11 per cent today after it announced that its annual profit
might be down 25 per cent, and its bad debt exposure for the year could be more than $2 billion.

In fact, ANZ's share price is now just half what it was nine months ago. ANZ's bad news follows a
bombshell from National Australia Bank on Friday that its exposure to the US had now spiralled
beyond a billion dollars for the year.

And the NAB's share price is now down more than 16 per cent over the past two trading days. The top
five Australian banks have had nearly $30 billion wiped off their share value since Friday.

Is there more to come?

Greg Hoy reports.

GREG HOY: Sending a shiver across the financial sector...

SHANE OLIVER, AMP CHIEF ECONOMIST: I think the write-downs that we've seen from two of the
Australian banks now are very significant.

If you go back a year or so ago, which is when the sub-prime mortgage crisis in the US really
started to hit, the general view is that Australian banks didn't have a big exposure to the US
mortgage market.

But of course since then we've seen billion dollar write-downs, and of course the risk is that the
situation will get worse before it gets better.

MARTIN NORTH, FUJITSU AUSTRALIA: It's pretty significant. And the reason is the uncertainty that's
been created by this.

What I mean by that is it's a global uncertainty because nobody really quite knows how much bad
news is out there.

GREG HOY: The dual downgrades is financial forecasts of ANZ, which today predicted a further $1.2
billion write-down for bad debts in the property market arising from the credit crisis.

And National Australia Bank which Friday said it would write-down $830 million of a total $1.1
billion exposure to he troubled US sub-prime mortgage market where the whole credit crisis began.

Together the Australian bank write-downs prompted a call for calm form the Federal Treasurer.

WAYNE SWAN, TREASURER: We shouldn't lose sight of the fact that we do have a strong, well-regulated
banking sector, which is capable of withstanding the fall-out from these international
developments.

GREG HOY: The share market wasn't so easily convinced. The ANZ stocks initially punished with a
13.2 per cent drop in value.

As NAB fell even further following its own 13.5 fall of Friday, when it lost $7 billion in its
market value.

SHANE OLIVER: The bank's are not only facing loses that show shadowed with loans to the US housing
market, but also, and of course that's what we're now starting to see, loses associated with loans
to Australian households, and also Australian companies.

GREG HOY: So while the ANZ's loses related to poor property loans and the collapse of stockbroker
OPUS Prime, the NAB's were result of direct exposure to the US mortgage debacle.

Through more than a billion dollars in securities NAB had acquired, which were backed sadly by
sub-prime mortgage assets known as collatoralised debt obligations.

Shareholders may be entitled to ask who was to blame for this disastrous acquisition.
Controversially the NAB has argued that credit ratings agencies such as Standard and Poor's had
given these securities a AAA rating, thereby justifying the big bank's fatal decision to invest in
such securities.

JOHN STEWART, NAB CEO: The only error NAB made was investing in AAA securities which have a one in
10,000 chance of defaulting. And in fact if we wouldn't invest in AAA securities we wouldn't lend
to any Australian companies because they have a lower grade than that.

GREG HOY: But not everyone in the market is buying this argument. Particularly JP Morgan's banking
analyst Brian Johnson.

BRIAN JOHNSON: Bank's can in the aggregate their underwriting responsibility to a third party. And
yeah I think that's a very flawed argument.

It is their responsibility to know what they're lending out on. It doesn't matter what anyone else
says. And so you know I just don't believe that's a valid per cent.

GREG HOY: While NAB's CEO John Stuart was not available to respond today other analysts backed NAB.

SHANE OLIVER: Unfortunately though the ratings agencies which granted those AAA ratings played big
role in this, effectively the loans were made to people who were very low quality borrowers, many
of them are now struggling to meet their payments.

Many of those loans on their own would've struggled to get anything near a triple A rating; in fact
they were well what might be regarded as sub-investment grade.

Unfortunately the theory was that they could be packaged together, only a few of them would go bust
and therefore you could maybe call it a triple A rating.

GREG HOY: Standards and Poor's emphasised to the '7.30 Report' their triple A rate something not a
recommendation to buy, sell, or hold. Pledging to work with the market to build greater confidence
in their ratings, with a reminder fewer than point one of a per cent of such rated entities had
defaulted prior to the sub-prime lending disaster.

MARTIN NORTH: Although there was some people up to a year ago were saying there were significant
issues. But the degree, the momentum, and the intensity of the problems are probably one,
unprecedented and two, probably hard to predict.

GREG HOY: Even harder to predict is what happens now that the halo of the Australian banking sector
has been so tarnished. Share prices already falling around 40 per cent from their highs last year.

The remaining two of the large banks, Commonwealth and Westpac have been quick with reassurances
they will not be making similar confessions, though confidence in such statements has clearly been
shaken.

WAYNE SWAN: I'm satisfied, and our regulators are satisfied, that the disclosures are satisfactory.

SHANE OLIVER: The big risk going forward, though, is that as we see this ongoing slowdown in the
global economy.

And of course now we're seeing a big slowdown in the Australian economy as well, that that will
lead to an increased level of defaults and delinquencies on the part of Australian borrowers.

Which in turn could lead to further write downs for the banking sector as a whole, not just the
banks which have announced big write downs so far.

MARTIN NORTH: The fact is we are in uncharted territory here. And therefore maybe the standard
assumptions and risks that we make assessments of are inappropriate and insufficient.

And therefore you could see a nightmare scenario where other things begin to go wrong and therefore
more risks come into the market.

GREG HOY: But now there is a growing reluctance to assume that the worst is over.

MARTIN NORTH: Consumers are already paying more for their loans than they were previously. I
believe we're going to see consumers having to pay even more going forwards,

And I think we're going to see competitive tension in the industry in Australia get less rather
than more. Because effectively we have four or five players now that are dominating the marketplace
and providing 90 per cent of the mortgage facilities for example for borrowers.

SHANE OLIVER: My feeling is that we're probably through the worst of it, that said I think economic
growth globally still has a fair way to slowdown.

Likewise in Australia; the Australian economy has only just started to turn down, I think over the
next 6 months it's gonna get a lot weaker from where it is at the moment.

Consequently the flow of bad news could continue for another few months at least.

KERRY O'BRIEN: And we're a long way from the bad news ending in America, that is for sure.

And that report from Greg Hoy