Friday, 25 July 2008

Share market monstered in minutes

About $35 billion was wiped off the Australian share market in the first 10 minutes of trading.

The Australian stock market plummeted more than 3% after National Australia Bank took an additional provision of $830 million on its exposure to the US credit crisis.

The bank's shares fell as much as 13% in early trading, and it is on track to record its worst day of trading in seven years.

Bell Potter senior adviser Stuart Smith said the US had led the local market lower.

"The US was down considerably and we really did follow their lead,'' Mr Smith said.

"Obviously the market didn't like NAB's provision but we should have known that was coming.''

NAB debt provisions cause shares to tumble

The National Australia Bank has made provisions for a possible loss of $830 million on debt-related investments because of the global credit crunch and the slump in the United States housing market.

That is on top of $181 million NAB has already set aside to cover risky investments.

NAB chief executive John Stewart says losses are likely because of a rapid increase in mortgage defaults.

"Unfortunately the behaviour of the housing market in the US leads us to believe that the worst case scenario may not be too far away from the most likely scenario," he said.

"Now we see our dividend being unaffected by today's announcement and our capital position remains strong."

The announcement of the provisions means NAB shares dived more than 12 per cent in early trade, as sentiment worsened in an already nervous market.

Even before NAB's announcement, Australian shares were in for a rocky ride after steep falls on Wall Street overnight.

The falls were sparked by figures showing US home sales have slumped to a 10-year low and Ford's record quarterly loss of $US9.1 billion.

By 12:00pm AEST, the Dow Jones Industrial Average had plunged 2.4 per cent.

Other banks followed NAB's lead, dragging the ASX 200 3.2 per cent lower to 4,978 and the All Ordinaries index down 150 points to 5,039.

The Australian dollar was worth 95.64 US cents.

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