Banks Lead Sydney Stocks Decline

123jump.com Staff
16 Sep, 2008
New York City

Stocks in Australia dropped as banks around the world declined after Lehman Brothers filed for bankruptcy protection and AIG faced liquidity issues and sought $75 billion in emergency funding. The news of two large financial meltdown rattled investors aroud the globe. Lehman Brothers owes A$400 million to Australian banks. Babcock & Brown led decliners in the index stocks with a plunge of 48%. Commodity stocks also slipped as crude oil prices declined 5.4%.

[R]3:00AM New York, 7:00PM Sydney - Lehman Brothers owes A$400 million to Australian banks. Stocks in Sydney dropped for the second day in a row as AIG faces liquidity crunch a day after Lehman files bankruptcy filing.[/R]

Australian stock indexes extended losses from yesterday as weaknesses in financial stocks persisted and added to losses by commodity stocks after oil and metal prices retreated.

Market Sentiment

In Sydney trading S&P/ASX 200 fell 1.53% or 73.6 to 4,744.10. Of the ASX 200 stocks 41 rose, 152 declined, and 7 were unchanged. Centro Properties led advancers in the index shares with a rise of 27.8%.

Lehman Brothers Owing A$400 million to Australian Banks

Bloomberg News reported today on its Web site that troubled U.S. investment bank Lehman Brothers, which filed for bankruptcy protection yesterday, owes A$400 million to Australia''s four biggest banks.

In particular, Commonwealth Bank of Australia has a debt of an estimated A$150 million owed by Lehman, while ANZ Banking Group Ltd. reported that it has a $28 million loan to Lehman and extended $92 million to a subsidiary

National Australia said it has less than A$100 million linked to Lehman, including debts owed to off-balance-sheet vehicles, while Westpac estimated less than A$10 million tied to the bankrupt investment banker.

RBA Balances Risk In September Rate Cut

The Reserve Bank of Australia reported on its Web site today in minutes of the monetary policy meeting of the board on September 2 that it cut its key rate by 25 basis points to 7% after balancing the risk of slowing demand and a tight monetary policy stance.

The central bank observed that in weighing the various factors the slowdown in demand that they had anticipated had begun, adding that the ""necessary precondition"" for a decline in inflation was now in place.

However, the bank says there were risks of easing too soon and waiting too long to make the expected intervention in the market.

The bank in its minutes noted, ""There were risks in easing too soon, since the evidence for the expected fall in inflation was still some time away. Moreover, as inflation needed to fall a significant way to be consistent with the target, policy could need to be on the restrictive side of normal for some time ahead.

However, there were also risks in waiting too long to have some easing of policy from a quite restrictive setting. In that event, demand could weaken more sharply than necessary. This would deliver a faster reduction in inflation, but at greater short-term economic cost.""

Global Banking Sector Sell-off

Banks in Asia dropped the most as investors worried that their exposure to Lehman and AIG will drag earnings in the sector. Mitsubishi UFJ dropped 8% to 792 yen and Sumitomo Mitsui Financial Group declined 9.8% to 619,000 yen.

Aozora dropped 16% after Lehman noted in its bankruptcy filing that the bank was the single largest unsecured creditor to Lehman. Aozora issued a statement that cited the error in the filing and said its exposure to Lehman is not more than $25 million as it has hedged most of the exposure. Shinsei Bank Ltd plunged 16% to 314 yen.

In South Korea banks fell sharply after the Financial Services Commission noted that local banks have a total of $720 million loan exposure to Lehman Brothers. Kookimn Bank dropped 8% to 55,300 won and Woori Finance Holdings dropped 14% to 13,050 won.

Babcock & Brown Ltd in Sydney trading fell 34% to A$1.05 on the worries that recent Lehman bankruptcy filing will cut off access to funds to the infrastructure funds manager.

Banks in China and in Hong Kong trading fell as well. Industrial & Commercial Bank of China Ltd dropped 7% and Bank of China Limited declined 6.6%.

Banks in India plunged in the global sell-off. ICICI Bank dropped5.7% to 591.65 rupees, However, State Bank of India closed 6.1% higher after it dropped as much as 5%.

Gainers & Losers

Centro Properties led advancers in the ASX 200 index shares with a rise of 27.78% followed by increases in Centro Retail Group of 5%, in Cabcharge Australia of 4.02%, in Felix Resources of 3.84%, and Futuris Corp. Ltd of 3.55%.

Babcock & Brown led decliners in the ASX 200 index shares with a fall of 47.47% followed by losses in Babcock & Brown of 18.75%, in Asciano Group of 17.82%, in Alesco Corp. of 17.37%, and Allco Finance Group of 16.67%.

Commodity stocks also slipped as crude oil prices declined 5.4% to $95.71 barrel and metal prices fell. Murchison Metals declined 14.97%, Mincor Resources dipped 9.77% and Atlas Iron Ltd lost 9.83% as a result.

Asciano Ltd. dropped after the company issued 23.6 million shares underwritten by its Security Purchase Plan.