FINANCIAL INSTITUTIONSISSUER COMMENT 7 DECEMBER 2015NATIONAL AUSTRALIA BANK LTD (NAB)Moodys Senior Unsecured Rating Aa2Moodys Outlook STABond-Implied Rating Aa3CDS-Implied Rating Baa2EDF-Implied Rating Baa3As of 12/2/2015ANALYST CONTACTSAllerton G. Smith 212-553-4058 Sr Dir-Sr Research Analyst allerton.smith@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.Market Signals ReviewNational Australia Bank: Three Market Signals Slip All NABs three market-implied ratings are now below their best levels achieved of the last 90 days. Readers will recall that when an entitys implied ratings fall, the underlying securities have underperformed the broad market.FIGURE 1. NAB: MOODYS AND MARKET-IMPLIED RATINGS, LAST 90 DAYS (DAILY DATA)The CDS-implied rating for NAB was Baa1 on September 2 (Figure 1). Recently it declined to Baa2, a level it touched several times over the last three months. NABs five-year CDS mid-spread of 77 bp compares to such peers as Commonwealth Bank of Australia (77 bp), Westpac Banking Corp. (77 bp), JP Morgan Chase (74 bp), Morgan Stanley (85 bp), Citigroup (101 bp), and Macquarie Bank Ltd. (107 bp).The bond-implied rating was Aa3 90 days ago; over the period it moved up to Aa1 and also fell to A1. It has now returned to Aa3 once again.The EDF-implied rating was Baa2 on September 2. As of early November, it moved lower to Baa3.MOODY'S ANALYTICS FINANCIAL INSTITUTIONS2 7 DECEMBER 2015 MARKET SIGNALS REVIEW: NATIONAL AUSTRALIA BANK: THREE MARKET SIGNALS SLIPOur ratings gap-conditioned transition matrices (available on Moodys CreditView) show that historically the bonds of a company rated Aa2 with a bond-implied ratings gap of -1 notch (in this case Aa3) outperformed the broad market 19% of the time in the following 12 months, matched the markets performance 9% of the time, and underperformed 72%...
