ANZ Drops 6% on Loss Provisions

123jump.com Staff
18 Feb, 2008
New York City

ANZ fell 6% after reporting indirect exposure to a mono-line insurance company in the U.S. of $200 million and commercial loan loss provision of $90 million. The news sent the company stock and other financial stocks lower. ANZ said in a trading update that the bank provison of US$200 million is likely to be recovered when credit markets recover. Four largest steel companies agreed to 65% rise in iron ore prices with Brazil based CVRD, lifting the stocks of mining companies.

[R]3:00AM New York, 7:00PM Sydney - ASX 200 index lost 0.9% after financial stocks declined.[/R]

Market Sentiment

ASX 200 index lost 0.9% or 48.2 to close at 5,558.40.

The Preliminary market turnover was 1.26 billion shares worth $5.78 billion, with 447 stocks moving up, 748 moving down and 336 unchanged. Telstra was the most actively traded stock with 50.7 million shares worth $240.7 million.

Market Driver

Australia and New Zealand bank, also known as ANZ bank, share sank to a two year low today after the bank announced that profit growth for this year was likely to be affected by rising credit costs. The bank fell 6.1% resulting in it pulling down other financial stocks.

The bank announced a one-time charge of $220.68 provision to cover any potential loss from an exposure to a U.S. based bond insurance companies. The bank said it was hopeful that a substantial portion of the $200 million provision might be recovered in the future.

The press release noted the following.

The significant increase in derivative market credit spreads and volatilities has resulted in a positive mark to market position with the sellers of the credit protection. However one counterparty, a US mono-line insurer, has been downgraded to a CCC credit rating. The uncertainty around the ability of that firm to meet its obligations under the hedging agreement has resulted in an accounting requirement to raise an Individual Provision of US$200 million based on the current mark to market exposure in that investment.

The effective economic impact if the mono-line insurer fails is that ANZ takes on direct exposure to a high quality portfolio of corporate names. In fact, this portfolio has a higher
proportion of investment grade corporate bonds than ANZ’s existing Institutional portfolio. For an actual loss to emerge, around 20% of names within the portfolio would need to default. This would only occur in an extreme environment in which a significant number of companies defaulted globally, which is not anticipated under any current economic scenario.

In addition to the mono-line exposure mentioned above, ANZ has credit protection intermediation arrangements with a number of counterparties all rated AA or better. The mark-to-market counterparty exposure is US$667 million, although the matched nature of the trades removes the market risk.

In addition the bank said it had incurred a $90 million charge to the collective provision after a significant credit rating downgrade for one large commercial property client although the situation did not warrant an individual provision.

The company said a review indicated that the factors driving the client''s credit rating downgrade were specific to that client, with the remainder of the commercial property portfolio in good shape. Analysts believe that the troubled client is Centro Properties Group. ANZ was reported to be having a $500 million unsecured exposure to Centro.

Despite the challenges, the bank remained optimistic of exceeding last year''s increase of 11% in its full year profit.

Gainers and losers

Of the ASX 200 index stocks, Challenger Finance led the gainers with a rise of 9.4% followed by increases in Sundance Resource of 8.5%, in Mincor Resources of 5.8%, in Fortescue Metals of 5.2%, and in Murchison Metals of 5.2%.

Of the ASX 200 index stocks, Centro Retail Group led the decliners with a fall of 9.5% followed by losses in APN/UKA European of 8.5%, in Macquarie DDR of 7.9%, in Just Group Limited of 7.1% and in AED Oil of 7%.

Centro share buoyed by extension

Australia-based mall owner Centro Properties Group''s stock recovered 17% after last Friday''s trading halt after the company got a reprieve from its creditors. The company obtained two week extension from last Friday''s deadline, to refinance $3.9 billion debt. The creditors including Commonwealth Bank of Australia and National Australia Bank all confirmed the extension in separate statements.

Centro also got another reprieve on another $1 billion debt that was also due on Friday but was extended till April 30. The company which owns more than 700 U.S. malls has been battling to raise money to refinance short term $3.9 billion in debt.


Analysts however believe that the two-week extension till put pressure on the company to sell its assets and that finding a buyer could prove difficult due to its complex financial structures. Centro Retail Group''s share, which was also affected by the trading halt, fell 9.5%.

Chevron Australia shuts down two oil fields

Shutdowns triggered by Tropical Cyclone Nicholas in Australia rose to more than 40% of the nation''s total crude-oil output after Chevron''s Australian unit stopped operations at its two oil fields off the northwest coast, as reported by AAP and Bloomberg news services.

Chevron Australia spokesman told reporters via e-mail yesterday that they had moved non-essential workers from the Barrow and Thevenard islands as Tropical Cyclone Nicholas neared the area. The company would lose production of 9,000 barrels a day.

The Chevron shutdown follows after other oil companies among them BHP Billiton Ltd, Woodside Petroleum Ltd and Apache Corp, halted production of at least 220,000 barrels a day of oil production off Western Australia.

The Australian Bureau of Meteorology said the northwest coastline was the most cyclone-prone region, with an average of five cyclones striking between November and April each year.

Primary shares falls 10% on trade resumption

Primary Health Care Ltd''s share fell 10% after the company requested lifting of a trading halt of the last two days. The company also announced that it had raised about $958 million for the institutional component of its $1.23 billion share issue to help it pay for the acquisition of Symbion Health Ltd.

According to Primary institutional entitlement offer released by the company today more than 80% of existing eligible institutional shareholders had agreed to subscribe to their entitlement offer, as of Feb 14. The company plans to offer same terms for the unsold portion of debt to retail investors through a prospectus filed with the ASIC today.

The retail component of the offer opens on February 22. Primary said that it held a controlling stake in Symbion of 57.54%. It made an offer of $4.10 per Symbion and valuing the company at $2.65 billion.

Bear Stearns Private Equity Ltd to acquire Macquarie Private Capital Group

Bear Stearns Private Equity Ltd has offered to acquire Macquarie Private Capital Group for $115.53 million in cash.

The $1.062 cash per Macquarie''s stapled security represents a 56% premium to the target''s closing price on Friday at 68 cents. In addition the company was offering a special dividend of 68 cents to be paid on or before the implementation of a scheme of arrangement.

The company said it was planning to use the acquisition as its first direct investment in the Australian market. Macquarie, which invests in companies and managed funds, rose 49.3%.


Allco postpone release of results again

Allco Finance Group today failed to announce its first half results. This is the second time that the company has postponed the release of its results after Friday''s postponement. ""Allco Finance Group advises that it will not be releasing its interim results for the half year to 31 December 2007 today,"" company''s secretary Tom Lennox said in a statement to the stock exchange.

He added that the shares will remain in voluntary suspension till the next announcement.