NAB's CDO man offered several RDOs

for cover right now, as management swings a hefty axe in the direction of staff.

The mess over residential mortgage-backed securities (RMBSs) has claimed three more scalps at National Australia Bank: nabCapital's global head of securitisation, Emmanuel "Manny" Arabatzis, and two members of his team departed on Friday.

Arabatzis' team had signed off on the US collateralised debt obligation (CDO) exposure responsible for the latest $830million write-down provision at the bank. RMBSs and CDOs are forms of bond that pay returns on the revenue earned from pools of mortgages.

Chief executive John Stewart left on July 25 after announcing the huge write-down provision from the CDO exposure, and was replaced in the top job by Cameron Clyne.

Arabatzis reported directly to nabCapital chief executive John Hooper - one of the three NAB executives who announced the $830 million provision last month.

According to a NAB spokeswoman, "lack of activity" in global securitisation markets meant that staff cuts were inevitable. "Arabatzis leaving has nothing to do with heads rolling," she said. "It's just a consequence of the state of the securitisation market."

But staff members at nabCapital told Full Disclosure that someone "had to go" over the loss.

"The CDO explosion went off right in the middle of Manny's patch," one banker said. "Heads had to roll, and I think Manny was a scapegoat."

The departures also increase pressure on Hooper - he has now lost his boss, in Stewart, and three key deputies.

At the July 25 announcement, Stewart and Hooper were adamant no one would be blamed for the loss.

"There has been no process breakdown and the investments were made according to our own strategy and our own analysis," was Hooper's line on the day.

But now that mortgage securitisation is a poison chalice in the banking world, there was no point in NAB carrying a well-paid team.

As head of global securitisation, Arabatzis led nabCapital to become the dominant arranger and lead manager in the Australian securitisation market. That included trading in US CDOs and mortgage-backed securities - and it's the failure of 10 US products that were bought for $1.2 billion that led to the woes at the bank. Those 10 products are now worth just $181 million.

In 2006, Australia became the fourth-largest market in RMBS products, behind the US, Britain and Spain. Last year, before the subprime meltdown, almost $100 billion of RMBSs were issued in Australia, of which 80% were placed in overseas and predominantly US products such as the CDOs in which NAB invested.

In announcing his own departure, Stewart pointed the finger firmly in the direction of ratings agencies for the bank's CDO problems. He noted that NAB's $1.2 billion portfolio of CDOs were all rated AAA, and that even BHP Billiton was only rated at A .

The rumour across town is the bank is considering legal action against some of the ratings agencies for their performance assessing the US CDOs. According to staff at nabCapital, the spotlight on the role of ratings agencies made Arabatzis' position even more difficult - he had previously worked at Standard & Poor's, and was responsible for rating Australian securitised debt products. In the mad world of trading debt obligations, in 2001 he rated the securitised value of Australian timber plantations for a new debt product to be traded. NAB conducted an internal review and says it will no longer rely solely on the AAA ratings of agencies to make investments.

Over at NAB, some cheekily suggest CEO Mike Smith is doing a fair impression of Jack Nicholson in The Shining when it comes to axe-swinging.

The word from the credit risk department is that a few are concerned just where the witch hunt will lead - tucked away in the records of several investments that have since turned sour are written recommendations from the credit team to take out a form of "buyers' insurance".

Those recommendations were ignored.

Capital, old chap

A MONTH ago ANZ put up the shutters when Full Disclosure asked if it had any problems with its capital position, but the bank has now gone, cap in hand, to the market to raise $500 million from the sale of hybrid debt.

ANZ is offering convertible preference shares in the hope of raising at least $500 million in what is one of a series of raisings investors can expect from Australian banks in coming months.

According to the prospectus, the preference shares are expected to convert to ordinary shares in ANZ on June 16, 2014. The sums suggest a 2.5% discount to yesterday's share price.

"The offer . provides cost-effective hybrid capital for the bank whilst giving investors an attractive offering from a AA-rated financial institution," ANZ group treasurer Rick Moscati said.

They have been assigned a credit rating of A by S&P and a provisional credit rating of Aa3 by Moody's.

The lengthy list of joint lead managers on the transaction includes ANZ Securities, Citigroup, Commonwealth Securities, Deutsche Bank, E*Trade, Goldman Sachs JBWere, JPMorgan, Macquarie Capital and UBS. Also expecting a nice little pay day are co-managers Credit Suisse and ABN Amro Morgans.