Australian Stocks Drop

Australia’s S&P/ASX 200 index snapped a three-day rise, led by financial stocks after Suncorp Metway Ltd. reported a slide in profit and Goldman Sachs JBWere Ltd. slashed its share-price forecast for the nation’s financial shares.

Suncorp, Australia’s second-largest car and home insurer, reported a 28 percent drop in first-half earnings after credit costs crimped returns and it had to pay higher payouts after storms in northern Queensland. Analysts at Goldman Sachs including James Freeman lowered their forecast for Australian banks by as much as 26 percent, citing increasing concerns over their earnings.

Suncorp is “swimming in the same ocean as a sector that hasn’t seen a lot of positive news,” said Hans Kunnen, who helps manage the equivalent of $128 billion at Colonial First State Global Asset Management in Sydney. “Higher interest rates and slower growth in bank profits are really crunching the finance stocks.”

ABC crisis forces $50m stock dump

ABC Learning Centres founder Eddy Groves is on the verge of losing control of the crisis-ridden company, with directors forced to dump $52 million worth of shares as mystery investors emerged with the potential to seize majority ownership of the childcare empire.

The company is facing a possible insider trading investigation by the Australian Securities and Investments Commission after Australian chief executive Martin Kemp was forced to sell $7.5million worth of shares on Friday – two days before the stock crashed to record lows on concerns about margin loans and its debt level.

It is believed the sale was triggered by a bank calling in a margin loan over the shares, but legal sources said clear evidence would be needed that this was the case to avoid an insider trading investigation.

Mr Groves and his wife, Le Neve, yesterday admitted they were among four directors forced to sell shares to meet margin calls, slashing their stake in the business from almost 8 per cent to less than 4 per cent.

ABC yesterday signalled possible asset sales to help cut its debts, with analysts speculating it might offload its 1000-plus childcare centres in the US after an approach from an unnamed buyer.

But another serious issue confronting the board is the ownership of so-called “exploding” convertible notes issued by the company last year that could be turned into a controlling stake in the business if the share price continues to collapse.

Unlike normal convertible notes, which holders can convert into a certain number of shares, the exploding notes are converted into a dollar amount of shares. This means the $600million worth of ABC notes buy a much bigger stake in the company as its share price, and stockmarket value, falls.

At the current market capitalisation of $1 billion, based on the last share price of $2.14, the notes could deliver the owners a 37.5per cent stake in ABC. But if the share price falls as low as Tuesday’s nadir of $1.15, the note-holders, believed to include the Commonwealth Bank’s CommSec broking house, could take control of ABC.

There was speculation last night that hedge funds had been driving down the value of ABC shares at the same time they were buying the convertible notes. Bain Capital Partners, a US private equity firm, was named as one potential buyer of the ABC shares.

The benchmark S&P/ASX 200 index slid 116, or 2 percent, to 5,651.20 at the close in Sydney, as three stocks fell for each that rose. It was the worst-performing index in Asia today.

Suncorp, tumbled A$1.22, or 7.9 percent, to A$14.31, set for its weakest closing price since Jan. 22.

A sub-index of financial stocks slipped 3.4 percent, the worst performing group on the index today. The measure has lost 21 percent so far this year as rising defaults from U.S. subprime, or high risk, mortgages reduced the amount of credit available worldwide and slashed U.S. company earnings.

National Australia Bank Ltd., the country’s biggest bank, declined A$1.36, or 4.3 percent, to A$29.97, a three-day low. Goldman Sachs JBWere shaved its estimate for the bank’s shares 19 percent to A$35.35.

Higher Rates

Australia & New Zealand Banking Group Ltd. slipped 3.6 percent, Westpac Banking Corp. fell 3 percent and St. George Bank Ltd. declined 5.6 percent. Goldman Sachs JBWere cut its price targets on the three by 4.7 percent, 13 percent and 14 percent, respectively.

Macquarie Group Ltd., Australia’s largest securities firm, snapped five rising days, losing A$3.04, or 5.1 percent, to A$57.04.

Australia’s central bank boosted its benchmark rate to an 11- year-high of 7 percent this month in a bid to cool the fastest inflation rate the country has seen in almost two decades. Odds the bank will raise rates again at its March 4 meeting are at 90 percent, according to a Credit Suisse index of interest-rate swaps. Higher interest rates deter customers from borrowing and increase the cost of finance for banks

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Todays Australian stock Update

THE Australian share market closed firmly in the black following a strong lead from Europe, with Wall Street closed overnight for a public holiday.

The benchmark S&P/ASX200 index was up 60.7 points, or 1.09 per cent, to 5619.1 while the broader All Ordinaries index had risen 54.6 points, or 0.97 per cent, to 5688.6.
On the Sydney Futures Exchange at 4.18pm AEDT, the March share price index contract was 35 points higher at 5613 on a volume of 20,800 contracts.
CommSec market analyst Juliette Saly said the solid market performance had been driven by a recovery in the banking sector and the top two miners.
"Banks and miners were what helped the European markets,” Ms Saly said.
"Rio Tinto and BHP Billiton are benefiting from news of higher commodity prices but other stocks that performed well yesterday have fallen a bit, including Fortescue Metals Group (FMG), which had a big run up when it was announced that iron ore prices were likely to spike up.”
FMG’s shares finished down 7 cents, or 0.93 per cent, at $7.45 while BHP Billiton gained 74 cents, or 1.9 per cent, to $39.70 and Rio Tinto had added $2.50, or 1.87 per cent, to $136.50.

With more than half the population either directly owning shares or indirectly through super funds, Australia has the highest number of shareholders per capita of any nation. Indeed, one of the nation’s pillars to pay for retirement is maximising super returns.

But Ann Byrne, the new chief executive of the Australian Council of Superannuation Investors, sees no conflict between members expecting a good return on investments and demanding companies look after the environment, employees and society along the way.

A well-known advocate of super funds taking an active role in forcing companies to adhere to good governance from her time as head of UniSuper, Ms Byrne this week signalled that ACSI, which represents 41 super funds that collectively manage $250 billion, would pursue environmental, social and corporate governance issues (ESG) with companies in which funds invest.

The recent sharp sell off in global share markets will have a marked adverse effect on returns from Australian superannuation funds, a research report says.

SuperRatings says 2008 has started in a sea of red ink for funds, with the average balanced investment option estimated to have lost 6.0 per cent since the beginning of January.

In the 2007 calendar year the median return for Australia’s major superannuation funds was 8.0 per cent, its lowest since 2003.

"Right now things aren’t looking great for super fund members," SuperRatings managing director Jeff Bresnahan said.

"But negative returns are expected on a balanced portfolio on average once every six years."

Australian superannuation funds last returned a negative result six years ago, when the average balanced investment option lost 5.2 per cent.

Withdrawing YOUR SUPERANNUATION

DESPERATE families are dipping into superannuation funds to fend off mortgage foreclosure and pay medical bills, groceries and utilities.

Fund trustees report the number of people raiding their nest eggs to pay living expenses has skyrocketed in the past five years.

Cash-strapped families can withdraw up to $10,000 a year if they prove financial hardship. And they can access as much super as needed to avert foreclosure, pay medical bills for life-threatening illnesses, pay for a funeral and other situations based on compassionate grounds.

But taking too much superannuation before retirement can cause greater hardship later, SuperRatings managing director Jeff Bresnahan says.

"It’s an avenue for people who genuinely could lose their house," he said. "It should be used for genuine need only or you really are just hurting yourself."

PAYING THE MORTGAGE

To stop the bank or mortgage lender repossessing the family home, super fund members can apply to the Australian Prudential Regulation Authority with a letter from their lender confirming that, if a payment is not made, the house will be repossessed.

MEDICAL BILLS

Super can be used to treat a life-threatening illness or injury, acute or chronic pain or mental disturbance.

Any hefty medical transport costs incurred in treating these conditions can also be funded by super holdings.

The treatment must not be available through the public health system and, again, super members must apply to APRA.

MODIFYING THE HOME OR A CAR TO ACCOMMODATE A DISABILITY

Making changes to a car or home to cater for a disabled family member can be paid for with super.

A letter from a doctor must confirm the disability and the need for modifications. Invoices for the costs are needed to apply to APRA for access to super funds.

PAYING FOR PALLIATIVE CARE AND FUNERALS

APRA will approve of the release of super funds to pay the costs of palliative care, which is all care associated with the relief of pain for the super funds holder or a dying family member.

Costs related to the death, funeral, burial or cremation of a family member can be drawn from super.

Doctors’ certificates and bills are required.

GENERAL LIVING EXPENSES

Super holders struggling with living costs, including groceries, utility bills, school fees and other expenses can apply to their individual fund for up to $10,000 in a year.

They must prove severe financial hardship by showing they have received Commonwealth income support for the past 26 weeks, including drought relief and exceptional circumstances payments, but not Austudy.

Applicants must show they are unable to meet reasonable family living expenses and have only the family home as an asset that could be sold to cover costs.

One super fund manager warns: "A lot of super trustees won’t consider current bills — they need to be overdue."

Mr Bresnahan says members of a fund that won’t allow early release can roll over into a fund that does.