It was a big week last week for the Australian banking, property and infrastructure groups and commodity sectors.
Major banks and property groups updated the market, from the Commonwealth, to Macquarie, the ANZ, Mirvac, Suncorp and Westfield. Lend Lease joined Westfield in raising fresh capital and confirming big write-downs.
The ANZ and the NAB had some downbeat news in their Friday updates; Westpac is due to make a statement shortly.
And we can’t ignore News Corp which reported a 42% in operating earnings because of plunging profits from its US free to air TV interests.
The company also reported lower newspaper earnings and over $10 billion in asset value cuts after impairment tests on its goodwill and intangible assets. News shares fell 12% in Australia last week.
Our banks should be lifted by the expected bullish tone from Wall Street tonight with the new version of the US Government’s financial bailout fund to be outlined.
US bank shares rose 12% on Friday to shake off some of the gloom of the past month.
It will be more of the same this week with Rio Tinto and the Commonwealth Bank delivering reports.
The CBA started last week with a surprise update of a better than expected profit, even though it will be down around 16% at $2 billion.
Watch the dividend, that’s the key to how serious the CBA (and other banks) will be in sharing the pain about.
Suncorp Metway finished the week falling short in its $900 million first round fund raising by $45 million, or about 5%. (It wants to raise up to $1.3 billion in total with shareholders putting in the rest.)
Suncorp shares are expected to resume trading today after the first part of the fund raising was concluded.
The shares will fall more than 30% to around the issue price of $4.50. It said Friday that it sold 190 million shares at $4.50 each.
Suncorp said last week would sell as much as $1.3 billion in new stock and cut its dividend after revenue and bad debts went the opposite way, forcing profits sharply lower.
CEO John Mulcahy quit the most high profile casualty among the banks (Although the NAB’s John Stewart decided to go last year, it’s not linked to the downturn).
Suncorp said it raised about $390 million through an underwritten placement and approximately $465 million through the underwritten institutional component of the accelerated non-renounceable 1 for 5 pro-rata entitlement offer.
The dividend reinvestment program is supposed to raise $100 million and the retail component around $502 million. It opens next week. If more than $100 million is raised from ordinary shareholders, the DRP won’t happen.
Macquarie had the best announcement: the market liked what it owned up to, even though there are still some with queries. The shares still lost 10% over the week. The CBA gained 10%; earnings will be down 50% in the year to March 31.
Both the NAB and the ANZ said on Friday that rising bad debts were eroding profit growth as losses spread from financial markets to the wider economy.
The NAB said quarterly earnings stalled at $1.1 billion in the December period as provisions rose 19% from the preceding three months.
ANZ said first- half profit for the six months to March 31 will drop by more than 15% from the first half of the 2008 news.
The National said "further weakness" is expected in its Australian banking business over the remainder of its financial year to September 30.
The NAB said it had set aside $824 million for bad and doubtful debts during the quarter, with $521 million of this for specific loans and the remaining $303 million in collective provisions reflecting a drop in customer credit ratings, it said in a trading update to the ASX.
The NAB said lending growth at home was offset by weakness at its UK business (Yorkshire, Clydesdale Banks).
At the ANZ, operating profit before provisions is expected to be "modestly higher" in the first half, but higher bad debts will push net profit down.
Analysts said the current level of bank dividend is now open to question given the comments from the three big banks so far.
All the majors have generated significant earnings growth from their increased dominance; have raised billions of money at lower than expected costs, thanks to the Federal Government’s guarantee.
But the outlook is for slowing loans and rising and debts as more and more businesses start to experience cash flow and trading pressures from the sluggish economy.
In property a number of real estate investment trusts and companies reported more asset value cuts and warnings of a tougher outlook.
Mirvac, Dexus Property Group and Macquarie Office Trust all issued warnings yesterday, saying that while earnings remained intact in the short term, further write-downs could be on the cards.
That came after Westfield’s $2.9 billion raising and figures showing slumping sales at its malls in the US, UK and New Zealand, while Lend Lease raised $302 million at a discount and confirmed property write-downs of more than $700 million.
Dexus saw the fall in the United States and European markets force a $773 million cut to asset values (around 8%). Roughly two-thirds of this was from overseas, with the rest in Australia.
Like Westfield, exchange rate movements helped to soften the declines by boosting the Australian dollar value of offshore owned assets.
Mirvac’s wrote down the value of it’s properly trust assets by $236 million and to book losses on joint venture investments and mark-to-market financial instruments.
That w
