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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (8863)	2/17/2008 10:46:40 PM
From: John Pitera	Respond to of 33421

ANZ Bank Drops as Smith Says Credit `Bloodbath' Will Cut Profit By Stuart Kelly Feb. 18 (Bloomberg) -- Australia & New Zealand Banking Group Ltd. fell to a 2 1/2-year low in Sydney trading after Chief Executive Officer Michael Smith said the ``bloodbath'' in debt markets will erase profit growth this year. Provisions including $200 million on derivatives linked to U.S. debt insurer ACA Capital Holdings Inc. will ``offset'' forecast profit growth of 11.5 percent in the year ending Sept. 30, the Melbourne-based bank said today. The upheaval in global debt markets ``is a financial services bloodbath,'' said Smith, who joined ANZ from HSBC Holdings Plc last year, at a briefing. ``Credit costs are going up, well above underlying earnings growth.'' The U.S. subprime mortgage crisis that's spread through credit markets may lead to $400 billion of write-offs from financial institutions around the world, according to Group of Seven estimates. In Australia, profit margins have narrowed and banks are raising mortgage interest rates faster than changes in the central bank's benchmark as funding costs rise. ANZ slid 4.9 percent to A$22.73 at 12:27 p.m. in Sydney, its lowest since September 2005. The stock's lost 17 percent this year. ``The market wasn't pricing in the full potential of writedowns,'' said Angus Gluskie, who helps manage the equivalent of $500 million, including ANZ shares, at White Funds Management in Sydney. ``ANZ is being cautious given the times in which we are living, and doesn't want to make the mistake of the U.S. investment banks which damaged their credibility by underestimating writedowns.'' Debt Ratings The bank said a ``substantial'' portion of the $200 million provision may be written back in the future. ANZ spokesman Paul Edwards confirmed the insurer as New York-based ACA, which had its rating sliced 12 levels to CCC by Standard & Poor's in December, casting doubt on more than $75 billion of debt the company guarantees, including $69 billion of securities such as collateralized debt obligations. The bank was expected to post a full-year net profit of A$4.34 billion, 3.8 percent higher than last year, according to 15 analysts compiled by Bloomberg before today's announcement. ANZ will also make a A$51 million ($46 million) provision for the ``failure of a resources client,'' and a A$90 million charge resulting from a credit rating downgrade of a commercial property customer. It didn't identify either company. Commonwealth Bank of Australia, the nation's biggest mortgage lender, last week posted the slowest profit growth in more than three years as provisions for bad debts jumped 71 percent and its bad-loan ratio increased. Credit Costs Growth in lending and deposits in the first four months of fiscal 2008 at ANZ ``have been overshadowed by higher credit costs on commercial lending,'' Smith said in today's statement. ``The turmoil in global financial markets has impacted a small number of customers and counterparties which is likely to result in higher credit costs.'' Australian banks have an estimated A$5.5 billion of investments linked to companies troubled by the global debt crisis, the Sydney Morning Herald reported on Feb. 15, citing brokerages including UBS AG. ANZ this year joined rivals in raising interest rates on its variable home loans to recoup higher funding costs by more than changes in the central bank's benchmark. It was the first time in a decade that banks lifted rates without any action from the Reserve bank of Australia. In October ANZ reported full-year profit of A$4.18 billion, following an 8 percent increase in costs in the second-half and a 39 percent jump in provisions for bad debts. U.S. bond insurers such as ACA may lose $34 billion on securities they guaranteed, Citigroup Global Markets said this month. They are likely to take losses of $32 billion on collateralized debt obligations backed partly by U.S. subprime mortgages, Citigroup said. They also may have an additional $2 billion in impairments on bonds backed by home equity lines of credit. CDOs repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net Last Updated: February 17, 2008 20:37 EST