Today's Episode Of The Loan Rangers: When Bad News Is Good News

The Age

Tuesday April 22, 2008

Vanessa Burrow

INVESTORS have got used to bad news, especially when it's emanating from a massive US bank.

JPMorgan, which admittedly has outshone its competitors, announced its profit had halved - and its shares shot up.

And Citigroup announced billions in write-downs and a quarterly loss of $US5.1 billion - and its shares rose 4.5%. The investment bank's shares are down 14.3% since the start of the year, compared with the Dow Jones Industrial Average, which has fallen 3.1% (see graph).

The write-downs are seen as a sign that, at last, things might be getting back to the way they were - a time when big banks didn't have to worry about where they were going to get short-term funding, or capital.

Of course, it's too early to call an end to the credit crisis. And recognising Citigroup's poor quarterly performance, Moody's Investors Service has lowered its ratings outlook on the bank to negative, in the US and Australia.

The spurt of US market confidence sent the S&P/ASX 200 Index to a two-week high or 5600.3 points, up 170.6, or 3.1%.

Macarthur Coal sprinted ahead, rising 14.7% and notching up its biggest one-day gain since it made its sharemarket debut at a 39% premium. The shares closed $1.95 higher at $15.20 after the company revealed it had received a takeover offer from an unidentified party.

Allco Finance Group recovered 6.5?, or 12.2%, to 60? and Rio Tinto gained $4.61 to $144.55.

Asian markets also rose on the lead from Wall Street. European markets, though, were down about 1% in mid-session. A report due last night from Bank of America will have some bearing on what the Australian market does this morning.

Russell Investment Group investment strategist Andrew Pease acknowledged that the Australian sharemarket had been hit particularly hard by the US subprime crisis and its flow-on effects.

Whereas the Dow is down 3.1% this calendar year, the S&P/ASX 200 has fallen 11.7% since January 1, and much more since its peak on November 1.

"This seems incongruous given that Australia's booming economy bears little resemblance to the subprime-stricken US economy," Mr Pease said in his market outlook report.

A factor that helped explain the paradox was the Australian market's amazing run between 2003 and late last year, Mr Pease said. Another was the country's disproportionately high weighting to financial stocks.

But it was financials that led the way yesterday. Collectively they were up 4.5%, as measured by the S&P/ASX 200 financials index.

ANZ leapt $1.45, or 7.2%, to $21.50, Westpac and NAB gained more than 6%, up $1.46 to $23.78 and $1.72 to $29.45 respectively. Commonwealth Bank added $2.24, or 5.4%, to $43.90 and St George jumped $1.05, or 4.4%, to $25.10.

Like the Bank of England, which will swap about #50 billion ($A106.4 billion) for mortgage-backed securities, the Reserve Bank has stepped up its efforts to provide financial market liquidity over the past two days, offering $1.1 billion in repurchase agreements backed by residential-mortgage backed securities.

Goldminers lagged behind the market, even though the yellow metal rose about $US7.50 an ounce, to about $US920 an ounce. The major producers were reflecting Friday's 3% fall in the gold price.

theage.com.au

? To see up to the minute exchange rates visit markets.theage.com.au/apps/mkt/forex.ac