Tough times for listed funds management group, Perpetual (PPT).
For a time there yesterday it looked as though the company had been given a free kick with the boost to the market from the US Federal Reserve’s credit markets support package" Wall Street rose almost four per cent and our markets had a similar opening.
PPT share price jumped sharply to hit a day’s high of $51.75 before retreating to hit a low of $49.61, and then bounced at the end of trading to end 52c higher at $50.30.
The great sell off has depressed Perpetual’s price, but so have struggles with problems in one of its cash funds, the Perpetual Exact Market Cash Fund.
A flurry of announcements revealed another round of pricing problems and possible losses in the fun: the company lost another $1.1 billion of funds under management and it revealed the appointment of a new chief financial officer.
Given the nature of the Fed’s move overnight and the way it was greeted, PPT’s timing was spot on initially as the market charged higher and investors took the news from the company in its stride.
But then obviously a closer look. Nothing wrong with the new CFO, his predecessor is off to run the company’s private wealth business.
But in the funds management loss of $1.1 billion in the month there was a big inflow of half a billion, and an outflow of $250 million, so the market sell down hurt, but not as much as January’s 11% fall.
But looking back to September 30 last year, Perpetual had $39.5 billion under management, that started slipping steadily but the big drop came in January, from $37.2 billion at the end of December, to $34.3 billion.
That’s a loss all up of $6.3 billion from the end of September to the end of last month because of the market drop and lost mandates.
Not helping was the bad news from the cash fund, the third such announcement in around five months.
There was the initial estimate of $5 million in unrealised losses, then another that boosted it to around $18 million in realised and unrealised losses. In the interim report that was refined to $12.8 million.
Now it says that as at February 29, net losses from the Cash Fund (EMCF) were $19.4 million.
The company booked a $12.8 million mark-to-market net loss from the EMCF in its fiscal 2008 first half results. That was a significant item.
The Cash Fund had invested in complex collateralised debt obligations (CDOs) linked to US subprime mortgages and residential mortgage-backed securities (RMBS).
If the fund performed below benchmark, Perpetual has promised to make up the difference to investors.
The firm said yesterday that $3.5 million of the losses from the fund were subprime related and not likely to be recovered.
The rest of the losses are unrealised, meaning they have not yet been.
Perpetual says the average life of the credit investments in the fund is about 18 months, so it remains possible Perpetual could recover the mark-to-market losses at a later date.
Perpetual said that at January the losses were $14.9 million and at February 29, 2008 they were $19.4 million, so a significant escalation in their size
"As previously announced, approximately $3.5 million of the losses after tax were sub-prime related and are not likely to be recoverable. The portfolio originally held less than 0.5 per cent of direct exposure to sub-prime and there continues to be no further exposures to these securities in the EMCF."
"The returns for investors in the EMCF remain favourable in the current market conditions and the fund continues to received strong inflows," Perpetual said.
Bendigo Bank saw its share price rebound 55c to $10.55 ending several days of being sold down on rumour.
The list of shorts in the bank was very high at one stage: why, no one quite knows. Perhaps it was because of fears of what might be happening to the wholesale funding and margin lending business of the recently acquired Adelaide Bank.
The bank yesterday said it was not aware of any reasons for a spike in its share price yesterday.
It was replying to a query from the stock market after its shares jumped 10.4% on Tuesday, while the broader market fell 0.9%.
Bendigo reaffirmed its earnings per share growth forecast of 12% for the current fiscal year.
"As stated in our announcement for the half year results on 18 February 2008, we reaffirm our full-year target for cash earnings per share growth of 12%," the bank said in response to a share price query from the ASX.
In the 2008 first half, cash earnings per share increased by 10.3% to 43c a share.
The bank’s net profit for the six months to December 31 was $72.8 million, up from $54.3 million for the previous corresponding period.
Bendigo and Suncorp Metway had been especially weak in the past few days until this week when they both went against the trend to rebound. Suncorp shares lost 14c yesterday to end at $12.36
Bendigo last year acquired rival lender Adelaide Bank in a $1.6 billon deal.
