Banks Beat Retreat As Investors Lose Interest

The Age

Tuesday June 17, 2008

Vanessa Burrow

AS AUSTRALIAN investment bank Babcock & Brown argued its case with its financiers, the retail banks again weighed on the market.

The S&P/ASX 200 Index, which at one time had risen 0.5% during the day, closed 6.4 points lower at 5371.7.

National Australia Bank offered the biggest negative influence, falling 73 to $27.55. It was followed closely by ANZ and Westpac, which fell 25 to $19.40 and 20 to $21.70 respectively.

A study published by PricewaterhouseCoopers and the Centre for the Study of Financial Innovation found liquidity was the biggest issue for banks worldwide.

PwC banking leader Michael Codling said even though Australian banks had proven relatively resilient, they also listed the "critical liquidity shortage in financial markets" as their main concern.

Heavy credit losses were their second-biggest worry, an issue most recently illustrated by the collapse of Babcock & Brown's share price.

Babcock & Brown Infrastructure yesterday recovered 9, or 12%, to 84 but B&B closed at a record low of $5.25 for the second trading day in a row.

The investment bank may face a review of its $2.8 billion corporate debt facility, which was financed by 25 banks, including Australia's Big Four.

It was not just the finance sector that hamstrung the market yesterday. Media companies, including Fairfax Media - owner of The Age - and Ten Network, also plunged, in response to analyst downgrades.

With the economy slowing, Shaw Stockbroking media analyst Greg Fraser said consumer discretionary stocks were out of favour. Fairfax Media dived to a five-year low of $2.88, having fallen 13, or 4.3%.

Over the past year it has lost 39% of its value, outperforming the S&P/ASX 200 consumer discretionary index by less than 1% (see graph below).

Ten lost 11, or 6.2%, to $1.655, after last week warning television earnings would fall this year. Deutsche Bank analyst Andrew Anagnostellis said the company was "facing a perfect storm", with deteriorating advertising markets, faltering ratings and escalating costs.

He retained a "sell" rating on the stock, with a 12-month target price of $1.55 a share.

Goldman Sachs JBWere analysts also downgraded their ratings on Ten and Seven. And they reduced their earnings estimates for media company APN and Fairfax Media because of their exposure to the decelerating New Zealand economy.

There were some positives on the market. Macquarie Capital Alliance Group, which is part-owned by Macquarie Group, was buoyed by a takeover plan that would take it private. A consortium has offered $3.40 a share for the listed buy-out fund, and shares jumped $1.16, or 55.2%, to $3.26.

Perilya, which has discovered zinc at its Broken Hill mine, gained 16.4%, or 11, to 78 a share.

Oil prices eased on reports that Saudi Arabia has agreed to increase production to prevent the price of crude surging higher than record peaks near $US140 a barrel.

Woodside fell $1.73 to $61.27, Santos lost 82 to $21.18 and Oil Search dipped 8 to $6.10.

Meanwhile, National Australia Bank downgraded its winter crop production forecast by 5% because of the lack of rain last month.

Agribusiness economist Frank Drum forecast total winter crop production would increase by 66% in 2008-09, to 37 million tonnes.

"Wheat production of between 24 and 26 million tonnes in 2008-09 remains a realistic possibility if farms receive average rainfall throughout winter and spring," Mr Drum said.

The reporter owns Fairfax Media shares.

© 2008 The Age

Back to News Index | Back to Home