Homeside International Inc - restatement

During September 2001, the Group determined that the carrying value of mortgage servicing rights (MSR) exceeded the fair value and the asset was therefore impaired. This impairment was the result of an incorrect interest rate assumption discovered in an internal model used to determine the fair value of HomeSide Lending, Inc.'s mortgage servicing rights. The impact of the writedown was $755 million (US$400 million).

Based on an assessment of this impairment loss, US$389 million ($734 million) has been attributed to the half year ended 31 March 2001 and the remainder has been attributed to the half year ended 30 September 2001.

The assessment determined that the fundamental error had no effect on prior year results with the impact largely arising in the first half of the year. The attribution of this error to the first half results is reflected in this profit announcement.

No adjustment to the result for the half year ended 31 March 2001 has been made for the other HomeSide US significant expenses.

The US$450m reduction to the carrying value of MSR announced by the National on 5 July 2001 did not represent a fundamental error in previously released financial results. The write-down reflected the result of accounting for hedging positions that deteriorated in direct response to economic conditions in the US during the current financial year.

The US$760m write-down to MSR and the $590m write off of goodwill announced by the National on 3 September 2001 were not fundamental errors. The former was recognised in order to reflect the mortgage servicing rights asset at its estimated market sale value. The latter was recognised on the same basis and reflected that the recoverable value of goodwill associated with HomeSide was estimated as $nil. The decision to reflect these assets at estimated market sale value was made during the current financial year.