National Australia Bank (or NAB) is the second largest financial institution by market capitalisation in Australia after Commonwealth Bank. It is one of the world's top 30 financial services companies with total assets of A dollar 474 billion as at 30 September 2006. It operates across 10 countries serving 6 million banking customers and over 2.3 million wealth management customers.
The National Australia Bank Group is organised around four key businesses: Australia - NAB and MLC brands; United Kingdom- Clydesdale Bank and Yorkshire Bank brands; New Zealand - Bank of New Zealand brand; and nabCapital, formerly Institutional Markets & Services, which operates internationally. In 1893, National Bank Limited was formed. Up until 1 October 1981 it continued to trade as The National Bank of Australasia Limited, only after the merger with the Commercial Banking Company of Sydney Limited did it become known as National Australia Bank.
In 1858 Alexander Gibb, a Melbourne gentleman, enlisted Andrew Cruickshank, a local merchant and pastoralist, to raise the capital to establish National Bank of Australasia with headquarters in Melbourne. Cruickshank became its first chairman while Gibbs left after being passed over for the position of General Manager. The bank opened its first branch in South Australia the same year. Expansion to other Australian states followed, with branches opening in Tasmania (1859), Western Australia (1866), New South Wales (1885) and finally Queensland.
The flexible mortgage was first successfully introduced in Australia in the early 1990 leading to the phrase Australian mortgage being used to describe this type of arrangement. The term flexible mortgage refers to a UK residential mortgage that offers flexibility in the requirements to make monthly repayments. Typical features include the facility, to make overpayments (more than the normal amount), to redraw (borrow back) any previous overpayments, to underpay- less than the normal amount, to take a payment holiday - stop repayments for a period, typically 3 to 12 months.
These features allow a flexible mortgage to be adaptable to individual circumstances. This is especially useful for self employed borrowers and those with a variable income. By way of example, borrowers whose income includes a significant but irregular commission component might make use of commission payments to make overpayments, thereby reducing the term or enabling them to underpay at other times. With traditional mortgages, borrowers often face large penalties for additional capital repayments or if payments were not made on time.
The bank opened a representative office in Tokyo in 1946, later upgraded to a branch in 1985. The banks overseas interest expanded more rapidly in the 1970. It opened a branch in Singapore in 1971, and representative offices in Jakarta (1973) and Hong Kong (1974). It took minority interests in merchant banks in these locations at the same time, and in Hong Kong established a 50-50 joint venture merchant bank with Mitsubishi Bank and Trust, but withdrew from these arrangements in 1984. Its first US presence was established in 1977 with a branch and an agency in Los Angeles that closed in 1993.
NAB booked two write-downs associated with HomeSide. First, in July 2001, NAB had a dollar 450 million write down of the value of its capitalised mortgage servicing rights (CMSRs) during the quarter ending June 30, 2001, and was the result of exceptionally high mortgage refinance volumes which lowered the value of the CMSRs, combined with a more challenging capital markets environment in which to hedge interest rate risk.
This was followed shortly by a second write-down reported in September totalling dollar 1.75 billion; this second write-down consisted of US dolar 400 million from an incorrect interest rate assumption embedded in the mortgage servicing rights valuation model, US dollar 760 million from changed assumptions in the model flowing from the continued unprecedented uncertainty and turbulence in the mortgage servicing market, and US$590 million from writing off of the goodwill. In total, NAB booked dollar 2.2 billion in losses due to HomeSide.