Banking was the sector of global markets that whacked value in the March quarter – from Australia, to Italy, UK and the US, these core financial groups of the world and individual economies sank as investors queried their exposures to commodities such as oil, economies like Brazil and bond investors fretted about the safety of their positions.
In some cases they helped sink the market – the prime examples Australia (as we saw in the past week in the wake of the ANZ and Westpac revealing a rise in bad debts) and Italy (where a 15.4% plunge in the market can be traced to the collapse in bank stocks.
The ANZ lost 16%, the NAB, 12.4%, Westpac, 9.5% and the Commonwealth fell 12% in the quarter.
But the standout, sector leading loser was Macquarie Group(despite expectations of a record profit for the year to March 31). It’s shares fell 20.5% in the March quarter, which in line with the losses seen in other banks with a heavy investment banking arm.
ANZ, NAB, Westpac (interims) and Macquarie (full year) all release their latest financial results this quarter and the figures for bad debts will be the one most closely examined in the wake of the news from the ANZ and Westpac last week.
Some of these big global banks have seen their share prices weakened because of the fears flowing from Europe (Italy, as well as Deutsche Bank’s big losses and surprisingly weak 4th quarter results from HSBC and Standard Chartered and losses for bond investors in a rescued bank in Portugal which rang alarms across the sector globally.
And then there are new forecasts of a massive fall in first quarter trading revenue and profits for these big investment banks.
We will start seeing if that is the case in the next two weeks as the likes of Goldman Sachs, City and Bank of America report their first quarter results.
These worries about the trading performance in fixed interest, equities, currencies and commodities is why Macquarie with its big global trading operation, was the worst performer among Australia’s big banks.
Investors will be looking for an update this month from Macquarie before the release of its results. Any such statement will be vital to maintaining investor belief in banks.
A major factor for these big global banks was the weakest IPO quarter since 2009. In fact the value of IPOS ($US50 million and above) is down 66% on a year ago according to Dealogic at $US14.1 billion. That will cost these big investment banks and brokers dearly.
So far this year 17 IPOs have been pulled of the 167 new floats around the world. The Financial Times points the failure rate of 17.6% in the first quarter was a record and has never before topped 4%.
In Italy, shares in the black sheep of Italian banks, Monte de Paschi fell almost 60% because of low capital and bad debts. The falls came despite moves to force Italian banks to merge.
Deutsche Bank, the German giant lost 29% in the quarter, while Swiss giants, UBS lost 15% in value and Credit Suisse a nasty 34% (it found some dodgy securities buried in its accounts a few weeks ago that added to the already big losses and forced the bank to cut more jobs.
In Britain, HSB shares dropped 24.8% during the first quarter and Standard Chartered slid a worrying 31.4%. Barclays was almost as bad, losing 30% since January 1.
In America the toll was just as terrible. Goldman Sachs shares dropped 13%, Bank of America, 20%, Well Fargo, 10%, Morgan Stanley, 21%, and Citigroup.
Analysts have dropped their earnings estimates for all these banks – the question now is whether these reductions are enough and if the banks managed to top these lowered benchmarks (which many usually do. Funny about that!)
And in Australia the big banks made a rotten start to the new month and quarter this morning – all four lost close to 2.3% or more in value in the first 30 minutes of trading, wiping billions of dollars from their value and forced the ASX 200 down 1.5% or 75 points at 10.30 am.
