NAB Faces Uncertainty Over Currency-Trading Scandal and Potential Credit Rating Downgrade

Strategic Insights -

Australian National Bank's losses from the currency-trading scandal are expected to be announced today, with analysts predicting that the total losses will exceed $400 million. The bank's shares have already taken a hit, closing at $29.59 on Friday compared to $30.52 on January 12, the day before the scandal broke. The uncertainty surrounding the scandal and potential credit rating downgrade is a significant concern for the bank's management, with Chief Executive Frank Cicutto's position being questioned.

Key Takeaways:

  • The total losses from the currency-trading scandal are expected to exceed $400 million, with analysts predicting at least another $200 million in foreign exchange losses.
  • NAB's share price has already taken a hit, closing at $29.59 on Friday compared to $30.52 on January 12, the day before the scandal broke.
  • Chief Executive Frank Cicutto's position is being questioned, with analysts noting that management will remain unstable as long as his position is in question.
  • NAB's risk-management systems were exploited by traders, with losses from high-risk transactions going undetected for several months.
  • International credit ratings agency Standard & Poor's has placed NAB on a negative ratings outlook, reflecting uncertainty about how deficiencies in the bank's systems contributed to the unauthorised trading.
  • If NAB's credit rating is downgraded, the bank's premium share price will be stripped out, forcing it to operate on a rating similar to those of its smaller rivals in the domestic market.
  • PricewaterhouseCoopers will conduct an internal review of the scandal, with the findings being of key interest to S&P.

Statistics:

  • Total losses from the currency-trading scandal: expected to exceed $400 million
  • Number of traders suspended: 4 (Luke Duffy, David Bullen, Gianni Gray, and Vince Ficarra)
  • NAB's share price on Friday: $29.59
  • NAB's share price on January 12: $30.52
  • Percentage decrease in share price: approximately 2.6%
  • International credit ratings agency Standard & Poor's prediction of NAB's credit rating downgrade: likely to happen if senior managers authorised positions greater than the risk limits set by the bank

Sources:

  • Sharon Kemp, National Australia Bank
  • Financial Times
  • Standard & Poor's ratings report
  • PricewaterhouseCoopers internal review