Australia Removes Bank Guarantees

Darlington Musarurwa
08 Feb, 2010
New York City

Stocks in Australia closed higher but the worries of global economic recovery remained. Australia removes guarantee scheme for large deposits. BT Investment accepts a revised offer from PEP.

[R]3:00 AM New York, 7:00 PM Sydney – Stocks in Australia closed higher but the worries of global economic recovery remained. Australia removes guarantee scheme for large deposits. BT Investment accepts a revised offer from PEP.[/R]

Australian stocks rose marginally after Treasury Secretary Wayne Swan announced that the country will scrap its guarantee scheme on large deposits on March 31 as the economy strengthens.

However, gains were pared after JB Hi-Fi chief executive Richard Uechtritz said he will step down in August.

Global investors speculated that smaller nations in the EU may not be able to implement budget cuts and will need a bailout to prevent widening contagion in the region.

In Sydney trading ASX 200 Index increased 0.2% or 7.3 to 4,521.40.

Of the ASX 200 index stocks, 76 gained, 110 fell, and 14 were unchanged. Ten Network led gainers in the index shares with a rise of 9.6% followed by Eldorado Gold-CDI climbing 5.1%.

The Australian dollar fell 0.9% to 86.62 U.S. cents.

Australia Removes Guarantee Scheme for Large Deposits

Australian Treasurer Wayne Swan yesterday announced that the government acting on advice of the Council of Financial Regulators will withdraw its Guarantee Scheme for Large Deposits on March 31, 2010.

However, the Financial Claims Scheme, which guarantee’s deposits of up to A$1 million, will be retained until the cap is reviewed in October 2011.

Australian banks have so far paid around A$1.1 billion for the use of the guarantee and will pay around A$5.5 billion over its full life.

The report also notes that the guarantee allowed non-major Australian banks to raise over $32 billion in funding from international credit markets.

Council of Financial Regulators- consisting of heads of the Reserve Bank, Treasury, ASIC and APRA- noted that bank funding conditions have improved such that the guarantee is no longer necessary.

“Without the Guarantee, our banks would have lent less ands interest rates for borrowers would have been higher, leading to lower growth and higher unemployment,” said Swan.

BT Takes Up PEP’ Revised Offer

The Australian reported today that Pacific Equity Partners has received 75% of Energy Developments shares after its third largest shareholder BT Investment accepted the higher PEP’s offer.

PEP controlled Greenspark Holdings increased its bid by a cent to the final price of A$2.76.

The bid is conditional on the bidder getting to the 90% threshold, after which it has compulsory purchase powers over the balance.

According to the report, BT Investment has sold a significant portion of its 7.8% interest into the offer.

PEP will terminate its offer beyond February 16.

JB Hi-Fi H1 Profit Rises 29%

JB HI-Fi profit in the first half ended December 31, rose 19% to A$76 million from the same period a year earlier and sales climbed 23% to A$1.5 billion.

However, chief executive officer Richard Uechtritz announced that he will be resigning in August after 10 years at the helm of the company.

But Uechtritz will rejoin the board as a non-executive director in early 2011 as well as taking up a three-year consultancy with the company.

ASX Movers

Macquarie CountryWide Trust led the decliners in the S&P ASX 200 index with a loss of 6.2% followed by losses in ING Industrial Fund of 5.4%, in JB Hi-Fi Limited of 5.1%, in Goodman Group 5.0% and in CuDeco Limited 4.0%.

Ten Network Holdings Limited led gainers in the S&P ASX 200 index with a rise of 9.5% followed by gains in Avoca Resources Limited 5.0%, in Independence Group NL of 4.5% and in Sundance Resources Limited of 4.1%.

Other Movers

Harvey Norman Holdings Limited climbed 1.9% to A$3.69 after the electrical retailer was upgraded to “buy” from “neutral” at UBS AG.

Incitec Pivot Limited rose 0.9% to A$3.29 after the fertilizer maker said Moranbah project to restart in May.

JB Hi-Fi Ltd fell 5.1% to A$19.07 after the retailer reported first-half net profit rose 29% to A$76 million.

Lihir Gold Limited advanced 1.8% to A$2.79.

OZ Minerals Limited rose 1.5% to A$0.99 after the mining company was upgraded to “neutral” from “underperform” at Credit Suisse Group AG.

Newcrest Mining Limited the gold producer added 1.1% to A$31.52.

Ten Network Holdings Limited surged 9.5% to A$1.66.

Wotif.com Holdings Limited the online travel agency dropped 3.5% to A$6.30.