Global financial markets are bracing for turmoil after the Dow Jones Industrial Average crashed to its lowest point in 12 years. Investor confidence is disappearing as the US economy sinks further into recession and there is growing concerns about the ability of the new Obama Administration to stabilise the troubled financial system.
At the centre of the Wall Street woes are concerns about the state of the US banking system and the willingness of the US Government to bailout the country’s two largest banks, Citigroup and Bank of America. News broadcaster CNBC also reported that insurance giant American International Group may be forced into bankruptcy if new rescue talks with the Government fail.
Sign up for SmartCompany newsletter.
Free to your inbox every weekday
The Dow Jones Industrial Average dropped 250.73 points or 3.4% to 7114.94. The key index has dropped 18.9% since the start of the year. Oil prices also fell back to $US38 a barrel.
Local stocks fall
Not surprisingly, the fall in American stocks has sparked a fall on the Australian sharemarket. The benchmark S&P/ASX200 index was down 42.6 points or 1.3% to 3308.6 at 12.20 AESDT.
The Australian dollar also remained stable at US64 cents.
News Corporation shares dropped 2.7% to $10.04 after news its chief operating office and president Peter Chernin will leave after 12 years in his role. New Corp has refused to comment on the key executive’s departure.
BHP Billiton shares have dropped 2.1% to $28.69, while ANZ shares have also lost 1.4% to $12.29. Westpac lost 0.7% to $16.20.
Commonwealth Bank shares have lost 2% to $28.98 on news the bank will purchase a $2.25 billion slice of the Wizard Home Loans portfolio from American group GE Money. The bank says it will also pass on the latest 1% interest rate cut to the loans included in the purchase.
Babcock & Brown Infrastructure has been placed in a trading halt after issues with the sale of its stake in New Zealand company Powerco.
“The reason for the trading halt is issues that have arisen which have created uncertainty relating to completion of the sale of an interest in the New Zealand business of Powerco Limited,” BBI said. “BBI is working to resolve the issues but is not yet in a position to provide details of any outcomes.”
Melbourne IT shines
Technology firm Melbourne IT has posted a 17% increase in net profit to $16.2 million for the year ended 31 December, with a 21% increase in revenue to $186.2 million.
Managing director Theo Hnarakis says the results are “very pleasing”.
Meanwhile, Suncorp-Metway has recorded a 33% fall in first-half profit to $258 million on bad debt and natural disaster claims, saying the result was “disappointing”.
Impairment losses on loans and advances jumped to $355 million from $16 million and flooding disasters in Queensland and the Victorian bushfires are expected to cost the company $180 million.
“Like many companies, we have faced numerous external challenges in the financial year to date and we have made a number of difficult short term decisions, such as reducing the half year dividend, which will help insulate the group and shareholders,” chairman John Story said.
“The board is satisfied that Suncorp is now well placed to manage through the current conditions. The capital raising has given the group a strong balance sheet and our businesses are very focused on cost and risk management.”