Time To Bale Out Of Bank Shares
Sydney Morning Herald
Friday July 6, 2001
Analysts are saying the run-up in the price of bank shares is coming to an end.
The brokers have been wrong before in recommending (short-term) investors to sell the banks but they are back at it again.
NAB's $568 million surprise writedown of its US mortgage arm, HomeSide, doesn't help sentiment one bit but there are a few other factors at work that mean bank shares might not do so well in the next few months.
For a start, there is data suggesting an economic recovery is pushing up wholesale interest rates and putting pressure on lenders' margins.
The data is also encouraging investors to take their post June 30 profits on defensive sectors such as financials and put them in the clearly rallying cyclical sectors like building materials and media.
The 90-day bank bill rate has been rising because of the bullish economic outlook (bad for interest rates), while further along the yield curve bond rates have also risen in recent days. Bank shares traditionally fare badly in these times, because they begin to look expensive relative to risk-free bonds.
Then there's the political issue that, despite the best efforts of the Australian Bankers' Association, profits will be hurt by pressures to cut fees.
Credit Suisse First Boston shifted its view on banks to ``underweight" yesterday, saying performance could suffer 10 per cent relative to market. It believes bank sector valuations are too high.
Spotlight on AOT
While the Australian Stock Exchange and its pals at ASIC continue to investigate last week's end-of-quarter trading, specialist broker AOT has got the market talking once again.
AOT, acting on behalf of its clients, was responsible for a lot of Friday's last minute buy orders, which brought serious share price hikes in some of the blue chips and sent the ASX200 flying 40-odd points higher to a record close.
The ASX200 at that time was linked to the June SPI futures contract which was expiring at the same time the buy orders were hitting the market. Needless to say, allegations of market manipulation have been bandied about ever since.
The ASX isn't saying very much and neither is AOT but according to a few market observers the amount of selling AOT has been doing this week, and the stocks it has been doing it in, has added fuel to the fire.
One example is AMP. At the 30-second match-up of last week's expiry, AOT's clients (the broker is often used by big institutions at expiry time because of its fast and efficient direct market access system) arranged to buy 786,000 of AMP stock at an average price of $21.99 40c above the previous bidding price. So far this week they've sold 790,000 at an average $20.84.
Commonwealth Bank is another. At the match-up, AOT agreed to buy 892,000 shares at $34.15 a pop; so far this week they've sold 890,000 at an average price of $32.20.
The practice of selling stock ahead of settlement does occur in the market but the fact that it's happening just days after one of the market's most volatile expiries has got the market gossips' tongues wagging.
Relief at MTM
Long suffering investors in MTM Entertainment will be glad to hear they're about to receive some cash after a financial rescue package from advisory group Babcock & Brown was approved yesterday. Babcock & Brown announced that its 34.5c-a-unit offer for all the units in MTM Entertainment Trust was unconditional and it had waived all of the conditions to acceptance of the offer.
That means unitholders who accept the offer will now definitely receive cash for their units by mid to late August, regardless of the eventual outcome of the takeover bid.
The offer was declared unconditional as part of an interim liquidity package Babcock & Brown extended to MTM last week to stave off the trust's looming cash crisis.
The package included the extension to December 31, 2001, of MTM Entertainment's current $37.5 million loan facility with Macquarie Bank, which was originally due on June 30, 2001. Macquarie had refused last week to provide additional funding under this facility.
With the liquidity package now complete, Babcock & Brown will exercise its right to acquire the shares in and take control of MTM Funds Management, the manager of MTM Entertainment.
Foster's on the rise
UBS Warburg has upgraded its numbers on wine and brewing group Foster's following its $35 million acquisition of US-based International Wine Accessories.
Foster's has $150 million to spend following its capital raising earlier this month and analysts reckon the cash will be used to fill in gaps in the wine division, Beringer Blass Wine Estates.
The upgrading by Warburg takes into consideration a reduction in the broker's forecasts for the exchange rate against the US dollar. For fiscal 2002, Warburg expects to see the Aussie dollar trading at US55c rather than the previously forecast US62c. This will mean, the broker said, a 15 per cent increase in earnings from the US wine business. For 2003, Warburg is predicting an 11 per cent increase in earnings after currency forecasts were cut from US65c to US59c.
``We expect creditable earnings per share growth of 11.5 per cent and 10.4 per cent in fiscal 2001 and 2002 respectively and our 12 month share price target has been lifted from $5.65 to $6.30, 16 per cent above the current level."
The shares slipped 7c to $5.37 yesterday.
Share price rise this year % Suncorp Metway 35 Macquarie Bank 22.5 Bendigo Bank 16.6 Bank Western Australia 15.2 Wide Bay Capricorn 14.2 Adelaide Bank 13 Bank Queensland 10.4 National Australia 9 ANZ 8.1c St George 3.1 Commonwealth 1.2 Westpac 0.6
© 2001 Sydney Morning Herald