Midday Market Roundup 16/09/2008

Sydney, Sep 16, 2008 (ABN Newswire) - The market is having another shocker – down 2.6% or 124 points – on the back of record falls on Wall Street overnight after Lehman Brothers filed for bankruptcy. The Dow's 504.48 fall overnight was the worst one session point drop since September 17, 2001, the first day of trading after 9/11. It was also the 6th largest point drop ever, just behind the 508 it fell in the October 1987 crash. Financials down 3.6%, Resources outperforming – down 1.5% and the Energy sector is down 3.5%.

Dow closed down 525. Went south all session and closed on its low. Credit crunch claimed its biggest victim hands down. Financials fell over 10% and lost $600bn in market capitalization. Lehmans down 94.25% after filling for the largest bankruptcy on record with $613bn in debt. No other major institution was willing to buy the fourth largest investment bank after the government said it was unwilling to support the company with any capital. Its dealer subsidiaries will continue to operate. As Lehman's balance sheet is liquidated, large losses are expected across the board as the value of assets held at other institutions fall, causing further write-downs. Merrill Lynch was sold the Bank of America for $50bn in shares and AIG is down 61% and desperate to find a massive capital injection or buyer to stave off collapse. AIG had approached the Fed seeking US$40bn to survive impending ratings downgrades and to cover losses on $18bn in guarantees on mortgage derivatives. The Fed apparently said that they won't lend to AIG. Oil down over 5% - energy and resources down.


Both BHP and RIO down substantially in ADR form overnight, 8.96% and 10.69% respectively. Both fell 4.51% and 6.59% in the UK.

Metals all down overnight – Nickel down 6.1%, Zinc down 6.59% and Aluminium down 3.82%. Copper down 2.59%.

Oil price down $5.67 or 5.6% to $95.52 – it closed below $100 for the first time in six months – on concerns that the Lehman collapse will hurt the global economy and reduce demand.

Gold up $22.50 to $787.

US Bonds up with the 10 year yield falling to 3.42% from 3.72%.

Financials are getting thumped on the back of Lehman's bankruptcy. The big concern is that the Bush administration and the Fed deciding not to provide capital to prevent a Lehman collapse. Makes you wonder, how many more failures will there be and how will they affect our banks? According to Lehman bankruptcy filings, ANZ Banking Group (ANZ) has the biggest exposure of all Aussie Banks through two loans worth a total of US$69m. National Australia Bank (NAB) has a US$10.3m exposure via letter of credit. Commonwealth Bank of Australia (CBA) has announced an exposure to Lehman's of less than $150m. They say, "The Commonwealth Bank will continue to work with the relevant parties in regard to its position".

Other news today…


The suffering for Babcock & Brown (BNB) continues – the stock is down another 35% today to 100c. It hit a record low of 83c earlier in the morning. It comes on the back of Citi saying the falling share price of BNB could impact the price the company gets for its asset sales, its ability to retain staff and conduct business.



Macquarie Group (MQG) down 6.7% to 3681c. The stock is down 29.7% in the past month.



Asciano Group (AIO) said it will raise $103.8m via a security purchase plan. Not a lot of support for the share price – down 11% to 360c after falling 13% yesterday. Its highly geared balance sheet is still causing concerns.



Leighton Holdings (LEI) said it has been awarded a $260m contract extension at Wesfarmers' (WES) Curragh coal mine in QLD state's Bowen Basin. LEI down 4.1%.



Babcock & Brown Wind (BBW) has announced a 10% on-market share buyback over the next year. BBW hit a fresh yearly low this morning. Down 10% at 86c.



Midwest Corp (MIS) is in a trading halt on the back of Sinosteel completing its acquisition of the company after gaining the 90% stake it needed to compulsory acquire it.

Citi say the departure of Phil Green from Babcock & Brown (BNB) is a double edged sword – On the one side changes needed to be made because the credibility was gone. On flip side, his experience at building the company in recent years will be missed. They say HOLD with a 416c target price.



GSJB Were has initiated coverage on Reject Shop (TRS) labeling it is a BUY with a 1400c target price saying, "We believe TRS stores appeal to value-conscious consumers, especially low and low-mid income consumers".


Sigma Pharmaceuticals (SIP) has been kept as Underweight with a 115c target price saying,… "Until we can see a reasonable case for EPS growth to improve in the next few years, we find it difficult to see why we should pay anything but a significant discount to a market p/e for the stock." SIP down 2.5c to 127.5c.

Rio Tinto (RIO) announces Cape Lambert rail car-dumper has returned to full operation.



Boart Longyear (BLY) has announced the acquisition of US based Eklund Drill/ing Company for an undisclosed sum.



ABN AMRO maintain Adelaide Brighton (ABC) as a HOLD with a 345c target price saying they remain positive on the stock's strong growth profile, lack of U.S. and limited NSW state exposure, and leverage to resource-based states but argue it is already factored into the share price.



We are expecting the minutes from the RBA's September meeting this afternoon. They will give us an indication if rates are likely to be cut further at next couple of meetings.
The FOMC meets tonight – there was talk of the Fed lifting interest rates but on the back of last nights developments, there is now a 60% chance of rates being cut by 25bps.

Malcolm Turnbull – millionaire and former merchant banker – has stolen the Liberal Party leadership from Dr Brendan Nelson in an early party room vote this morning. He won the vote 45-41.

Our dollar has fallen below 80c again to 79.54c.


 

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