Unease is growing about the financial health and position of banks large and small in the US and Britain in particular, and our investment banks, like Babcock and Brown and Macquarie Group are being caught up.
Both fell sharply yesterday: Babcock (BNB) fell nearly 8% to $11.11, just 6c above its year low. Macquarie shed more than 6%, or $3.20, to hit $50.06 at the close.
Macquarie has lost 32% in a month and that’s a tough start for new CEO, Nicholas Moore, to grapple with.
The commercial banks were hit as well: the CBA lost 46c to $41.49, the NAB shed $1.06 to $29.37, Westpac shed 88c to $21.79, ANZ lost 52c to $20.38 and St George slumped a large $1.81 to $30.14. That’s almost $3 under the value of the bid implied by Westpac’s terms three weeks ago.
Thanks to the weakness among the banks, the ASX200 index fell 88.1 points, or 1.56%, to 5574.2, while the All Ordinaries shed 78.2 points, or 1.35%, to 5703.
Driving this new loss of confidence in the likes of BNB and MQG was the news of the rescue of Bradford and Bingley in the UK, the sacking of the CEO of Wachovia, America’s 4th biggest bank and the likely departure of the former CEO and chairman of Washington Mutual.
But the worrying news was credit rating downgrades for Lehman Bros, Merrill Lynch and Morgan Stanley. Wachovia is on credit watch negative at Standard & Poor’s, which removed Citigroup from a possible downgrade, but says its outlook remains negative. Bank of America and JPMorgan Chase are also on negative outlooks, as is Goldman Sachs, despite having its rating re-affirmed.
State Street bank surprised by revealing plans to raise $US2.5 billion in new capital, sending analysts off to worry if this was a suggestion that the bank, which is the world’s biggest holder of money for institutions, might be about to report new losses.
The same thought came to mind when news seeped out yesterday afternoon that the newly downgraded Lehman Bros was about to try and raise billions of dollars in fresh capital, a month or so after it raised over $US4 billion. It says it has enough cash, but a situation similar to that at Bear Stearns seems to be developing.
US Federal Reserve chairman Ben Bernanke made it clear overnight rate cuts had stopped in the US and the central bank was now watching the impact of the weaker dollar on US prices and the economy generally.
Commodity prices fell sharply as a result with gold, copper, oil, wheat and a host of other products sold down sharply. Oil in New York ended down around $US124 a barrel as the key regulator tightened trading and disclosure rules for financial investors in commodities.
Wall Street fell.
Australian finance stocks have fallen 25% so far in 2008, even though Macquarie and Babcock have avoided the US subprime problems.
Babcock though has its problems with some of its investment satellites, such as the Power company, which the investment bank has had to stand behind because of a slumping share price and confusion over its huge refinancing.
Macquarie’s listed investment funds have also suffered and face a difficult future, including low or no fees for Macquarie.
The worry about Lehman Brothers raising a rumoured $US3 billion to $US4 billion in fresh capital, suggests it is facing a first quarter loss instead of a profit.
Lehman reports a fortnight today in the US. Its shares are down almost 50% so far this year.
