Cba Sets Alarm Bells Ringing, And Makes It Another Loss Day For Index

The Age

Thursday February 14, 2008

Vanessa Burrow

BANK stocks tumbled to the finish line after Commonwealth Bank reported that after-tax profit had risen by just 4%, to $2.4 billion.

The bank, which is widely viewed as a bellwether for the financial sector, said higher funding costs and rising bad debts had affected its performance.

"The last six months has been challenging for global banking and wealth management as the subprime asset crisis in the US has unfolded," said Commonwealth Bank chief Ralph Norris.

The shares sank $3.20, or 6.5%, to $46.20. And other banks played follow the leader, with National Australia Bank falling $1.80 to $30.40, ANZ losing $1.50 to $23.80, Westpac sinking 99? to $23.25 and St George down $1.88 to $25.52. Since mid-2007, some of these banks have lost about a quarter of their value (see graph below).

Bendigo Bank toppled 82?, or 6.9%, to $11.01 and investment bank Babcock & Brown dropped $1.05 to $16.50 while Macquarie Bank ended the day $2.56 lower at $56.85.

The sector was instrumental in pulling the S&P/ASX 200 Index lower, particularly in the final 90 minutes of trade. By the close, the index had lost 66 points, or 1.2%, to 5542.1.

But there were bright spots. Computershare gained 74?, or 9.8%, to $8.30 after announcing first-half revenue had risen by 14% and adjusted net profit had increased by 46%. And Boral, which announced a share buyback, gained 42?, or 7.5%, to $6.01 despite first-half profit falling 10%.

Wesfarmers added 50? to $37.65 and Foster's Group gained 24? to $5.75 even though consumer confidence fell 5.5% in February, according to the Westpac-Melbourne Institute's consumer sentiment index.

In the debt markets, the gap between Australian and US treasuries just keeps widening.

The price of two-year US Treasury notes rose, and the yield fell to just 1.901%, while the yield on two-year Australian government bonds was 6.806%. The difference, or the spread, widened to 4.905%.

The interest rate at which banks lend to each other also continued to rise, and the three-month LIBOR (London interbank offered rate) has climbed to 7.610%. The official Australian interest rate was raised to 7% on February 5.

But speaking on the outlook for corporate debt markets in 2008 at a Financial and Treasury Association conference in Melbourne yesterday, Barclays Capital's Tim Lindley and Khalid Krim said hybrid capital markets were proving resilient to the current crisis in credit.

Hybrid securities include convertible notes, preference shares and other securities and can be used as an alternative to equity raisings.

"This is a market that has managed to go through the credit crisis," said Mr Krim, who is head of European hybrid capital. "This market very often outperforms other asset classes."

But Mr Krim said the one area of concern was how ratings agencies would evaluate hybrid capital.

In the battle of the cities, the West Australian capital yesterday became home to yet another listed entity, waste-technology group AnaeCo.

The addition means Perth has overtaken Sydney as the home for the biggest number of listed companies. WA now has 762 listed companies.

But AnaeCo went untraded yesterday. The company raised $5 million through the issue of 25? shares. It has 57.9 million shares on issue.

LINK

? To find out more about waste technology company AnaeCo, visit www.anaeco.com