There should be a lot of shamefaced and apologetic investors, brokers and fund managers for the silly sell-off yesterday morning in a follow on reaction to the US market slump on Monday night.
After wiping billions of dollars from share values: around $65 billion according to some estimates in the big morning fall of 220 points or more than 5%, the market rebounded strongly in afternoon trading to end the day up 48.7 points or 1.2%.
That rise left value up around $14.5 billion from Monday’s close.
And nowhere was the absurd volatility seen than in the cornerstone of the market, the banking sector, where billions of dollars in market value was wiped, then restored yesterday.
Bank investors took their lead from Wall Street’s slump and a vicious sell-off in Bank of America and Citigroup shares. That followed losses for banks in Europe.
So the feeling was ‘banks bad, sell’; a stance made absurd by the sudden surge in buying interest in the afternoon.
Adding to the nervousness in banks was the third quarter market update from the NAB which contained no real shocks and no real reason to sell the bank or its peers.
But some market commentaries claimed it added to the negative sentiment when the NAB warned about limited growth prospects ahead, but that has been a ‘known known’ for investors now for months.
Falls of 4% to more than 7% were seen across the sector in the morning as investors sold, despite the banks being well capitalised, in no trouble and very profitable.
NAB shares lost around 5% or $1.25 to a new low of $19.64 before they came screaming back in the afternoon to end this incredible day up 2.9% or 60c at $21.50.
The CBA shed $2.21 or close to 5% as well and touched a new low of $43.41.
Ahead of its 2011 profit report (to be released before trading this morning) CBA shares jumped 3.6% or $1.66 to close at $47.28. That’s a total fluctuation of more than $4.80 or well over $7 billion in the CBA’s value.
Westpac fell by around 5.2% in the morning, before closing up 2.2% at $19.26. The story was the same with the ANZ, down 4.5% in the morning, up 2.7% in the afternoon to $19.01.
Macquarie Group lost more than 6.8% in the morning before it rebounded nearly 3% to end at $23.50.
And Bendigo and Adelaide, which reported a solid result on Monday for 2011, saw its shares lose over 7.8% in the morning and recover 1.5% in the afternoon to $8.07.
The NAB reported quarterly cash earnings of $1.4 billion, but warned of subdued credit growth in all of its key markets.
That warning confirmed similar comments from other banks, such as the CBA in the past month and from banking analysts and the Reserve Bank.
The NAB said it saw revenue growth for the three months to June continued in each of the personal and business banking units as well as New Zealand, but this was offset by a drop in revenue from NAB’s wholesale banking arm, with big businesses holding off investment plans.
The latest result was up from the $1.1 billion recorded in the June quarter last year and compares to a first half (March 30) profit of $2.7 billion.
"This was achieved despite considerable challenges including Australia’s multi-speed economy, subdued credit growth and fragile consumer confidence in all the markets in which we operate," according to NAB chief executive Cameron Clyne in yesterday’s statement.
The bank said earnings were helped by tight cost control as well as a gradual decline in the charge for bad debts.
"Despite challenging operating conditions the Group continued to deliver earnings momentum from revenue growth, careful management of costs and a gradual decline in the charge for bad and doubtful debts.
"Revenue momentum reflected growth in Business and Personal Banking in Australia and New Zealand Banking, partially offset by lower revenue from Wholesale Banking due to subdued operating conditions."
And there was some benefit from NAB’s go it alone strategy in personal banking, especially home mortgages, where it has been discounting aggressively, and forcing the likes of the CBA to follow suit.
The NAB said it again grew market share in its personal banking business, but the bank said the pace of credit growth slowed while competition increased.
(The CBA slashed its fixed mortgage lending rates by up to 0.60%, and Westpac followed a few hours later.)
Despite a slowdown in the overall demand for business credit, NAB said its flagship business banking arm managed to grow lending volumes to small and mid-sized businesses while improving profit margins.
The pace of lending remained subdued in New Zealand, while NAB’s Clydesdale bank in Britain managed to edge out rivals in mortgage and business lending even in the face of depressed market there. NAB said credit quality in the UK was stable but "remains sensitive to economic conditions".
A feature of the NAB’s update was a lift in its net interest margin (NIM) to 2.32% from 2.23% in the six months to last March (a comparison wasn’t given with the third quarter of last year).
"Approximately half of this increase reflected the accounting treatment of Treasury activities.
The balance was a result of repricing through the March half year and some pricing and funding cost changes in the quarter," NAB said.
Bendigo Bank said it improved its NIM to 2.17% from 2.12%.
