It won’t be a good day in Australia today for investors.
Wall Street was down and there’s the crash of a margin lending broker to worry the market.
The ANZ and possibly Merrill Lynch will continue dumping the $1 billion (estimate) of shares they picked up in the collapse of Opes Prime Group after they helped keep our market in the red on Friday with some eyebrow raising sales of key shares at well below market prices.
Merrill Lynch is believed to have been behind around $200 million of selling on Friday. The ANZ claims it didn’t sell any but has appointed Goldman Sachs JBWere to handle the disposal of its holdings in an orderly fashion.
The likelihood of legal action from officials and from regulators and aggrieved investors with Opes can’t be dismissed: there was much reporting of "holes" and ‘irregularities’ in the weekend media and the way the company operated seems to be contrary to accepted good business practice.
Even though there’s the notion of caveat emptor, it seems not too many financially smart people had any idea that when they put up their shares as security for margin loans with Opes that Opes gave the shares to the ANZ and Merrill Lynch as security: no wonder the ANZ says it’s comfortable, despite having $650 million at stake.
Despite the recovery in bank shares investors in the ANZ would be justified in keeping a weather eye on the bank: they have been mixed up in two dodgy margin lending brokers: Tricom and Opes. There seems to have been an unhealthy lurch to the wilder side of stockmarket financing by the ANZ.
Media reports say two ANZ staff in the stock lending department had been sent on leave because they were found to have dominant positions with Opes.
Opes wasn’t a replica of Tricom which was a pure lending and broking business. Opes did that but in a different fashion to give its 1200 or so clients greater flexibility in buying shares. It was into equity financing and securities lending. Its principals had an investment company called Hawkswood Investment. It in turn had joint ventures and investments.
According to media reports companies as diverse as Telstra, Challenge Financial, Australian Pharmaceutical Industries, Austin Group, Admiralty Resources, Hedley Leisure (which already has problems) and Heartware could come under pressure today as shares are sold.
Hedley and Admiralty have already made statement: a senior executive of Admiralty has nearly $3 million in a loan with Opes prime. The shares pledged as security are gone. Hedley has requested a trading suspension after 8% of its shares were crossed on Friday well below market.
The Dow and the Standard & Poor’s 500 were off just under 1% on Friday night and the share price index was pointing to a similar fall here (49 points) at the opening.
The US market though is heading for the worst quarterly slump since 2002 with the March quarter to finish tonight. Our market is heading for the worst quarter since 1987.
Friday saw not only more poor news on the economy, but a surprise and very large downgrade from JC Penny, America’s third biggest department store group. Its shares fell 11% last week, most of which happened in the wake of the warning about a profit drop of around a third, and a fall in same store sales, always a good sign of a tough retailing market.
The S&P 500 ended down 0.8% and lost 1.1% for the week; the Dow fell 0.7%, to be down 1.2% and Nasdaq eased 0.9% on Friday but was up 0.1% for the week.
The S&P 500 has lost more than 10% so far this year (which is the first quarter), its biggest quarterly drop since the 18% fall in the third quarter of 2002.
The index fell 3.8% in the last three months of 2007, which meant the second back-to-back quarterly decline since 2002.
The JC Penney news demonstrates the impact of the subprime mortgage mess, the housing slump and credit crunch on the US consumer.
US Government figures on Friday showed that personal income rose 0.5% in February, but spending rose just 0.1%, the smallest rise since September 2006.
Separately, the US Federal Reserve announced that it would make an additional $US100 billion available to cash-deficient banks through two auctions during the month of April, as part of its campaign to keep credit markets well cashed up.
And US consumer sentiment fell to 69.5 in March from a previous reading of 70.5 and down from 70.8 in February.
European shares fell, while Asian stocks had their biggest weekly gain of the year.
European stocks were led lower by construction companies and retailers, on concern that an economic slowdown will erode earnings.
The Dow Jones Stoxx 600 Index lost 0.6% to 306.68, trimming the week’s gain to 3.3%. The pan-Europe index is down 16% and it’s headed for the worst first quarter since at least 1987.
National markets fell in 12 of the 18 western European countries: London’s FTSE 100 dropped 0.4%, Germany’s DAX fell 0.3% and France’s CAC 40 lost 0.5%.
The UK market is headed for a 12% fall this quarter, its worst in five and a half years.
Asian stocks had the best weekly gain this year, after China National Oil Co reported higher profits and Samsung Electronics Co. forecast higher sales.
The MSCI Asia Pacific Index added 1.1%, after earlier losing as much as 0.5%.
The Index rose 4.2% last week, its largest advance since the last week of November.
The Index though is heading for a 10% drop this quarter.
Japan’s Nikkei climbed 1.7%; China’s CSI 300 Index jumped 4.5% after CNOOC’s profit report. Every market, bar Australia, rose on Friday.
The Australian share market is heading for a 16% fall on the ASX 200 as we move towards the end of the quarter this afternoon.
Trading will be nervous because of the problems with Opes Prime: although there’s only around 1200 clients involved, a billion dollars is stil
