Memo Credit Suisse: Banks For The Memories

The Age

Friday April 25, 2008

Vanessa Burrow, With AAP

SWISS bank Credit Suisse has provided some perspective about the state of Australia's banks, announcing its first quarterly loss in almost five years.

The investment bank wrote off 5.3 billion Swiss francs ($A5.5 billion) on problem loans and mortgage-related investments, and lost 2.15 billion francs in just three months.

In contrast, ANZ this week announced cash net profit of $1.67 billion, pushing the share price more than 4% higher.

But the bank, which has just raised its standard variable rate home loan by another 10 basis points to 9.47% a year (with a comparison rate of 9.52% once fees and charges are taken into account), yesterday lost 52?, or 2.4%, to $21.51.

Interestingly, research house TNS found almost 78% of business customers were "very satisfied" or "fairly satisfied" with their main financial institution.

Of the Big Four banks, ANZ had the most satisfied customers over the three months to March 31, followed by Westpac and National Australia Bank and Commonwealth Bank.

The S&P/ASX 200 Index fell 65.6 points, or 1.2%, to 5587.3 points. It was tugged down by the banks, with National Australia Bank losing 71? to $29.30 and Commonwealth Bank down 69? at $43.50.

Some of ANZ's decline could be traced to its decision to invest $55 million in Chimaera Capital, a company that, like the collapsed Opes Prime and the trouble Tricom, offered margin lending and securities lending.

After dissecting ANZ's first-half results, Deutsche Bank's head of Australian company research, Ross Brown, said revenue had grown by a "very respectable" 12%.

But there were challenges ahead. "Bad debts are unlikely to have peaked, given the prospect of economic slowdown in Australian and especially New Zealand," he wrote.

Yesterday the Reserve Bank of New Zealand kept interest rates at 8.25%, citing high short-term inflation due to rising food and energy prices.

But the central bank noted that economic activity had slowed more than expected. The Australian dollar has risen to a 51/2-month high of $1.195 against the kiwi dollar, and last night was buying US94.65?.

On the sharemarket, QBE Insurance gained 31? to $24.55 and Fortescue Metals jumped 17? to $7.60.

Fertiliser company Incitec Pivot seems to be closing in on the $200-a-share mark, as the price of food rises, having added $2.92 to $177. Yesterday the price of rice hit a record $US25.07 per 100 pounds and there have been reports of rice rationing around the world.

The oil price has relaxed slightly, with futures for delivery in a month fetching about $US118 a barrel. This week they reached a record $US119.90.

But oil refiner and marketer Caltex Australia fell 7% after saying it might cut output because margins were contracting. Its shares were down 93? at $12.38. In contrast, Woodside Petroleum added another 28? to $60.49.

Wesfarmers remained in a trading halt, but the conglomerate last night reported the completion of the institutional leg of its $2.5 billion equity raising to help pay for its $20 billion acquisition of Coles.

Wesfarmers said the institutional rights offer and associated book-build would raise about $940 million at a strike price of $29 a share. The remaining proceeds from the offer of about $1.6 billion will be raised through the retail component, which opens on Monday.

Furniture retailer Nick Scali plunged 22.5% on low volumes after announcing a profit downgrade, because of lower sales in March and April. Its shares fell 29? to $1.

Meanwhile, Wealth Within chief analyst Dale Gillham, who has recently compiled a short course on trading contracts-for-difference (CFDs), said people were attracted to the instruments because they required less upfront investment than shares. "Trading a CFD is almost like trading a share, it just has leverage on it," he said.

But Mr Gillham said most people who wanted to trade the instruments had little idea how to go about it. "Eighty per cent of our calls are about CFDs and almost without exception most of them should not be trading them," he said. "Unless you can trade a share you should not be trading options, or warrants or CFDs." -- With AAP

LINK

? See a New York Times article about the rising price of rice at tinyurl.com/5fp2zf