Australia Market Report of July 23: Banks facing Big Profit Drop

Sydney, July 23, 2008 (ABN Newswire) - Wall Street closed sharply higher overnight as another drop in oil prices improved investor sentiment. Wall Street staged a late rally after a mixed session, as a drop in oil prices helped to offset disappointing earnings reports from the likes of Apple and American Express. American Express reported second quarter earnings were below estimates and withdrew its full year earnings forecast.

Banks have been savaged amid mounting concerns they face earnings falls because of the slowing economy, a drop in lending and rising bad debts. Australian banks so far have avoided the worst of the fallout from the collapse of the US housing market but Citigroup analysts forecast pain is imminent with NAB (ASX:NAB) and ANZ (ASX:ANZ) facing a 12 per cent drop in profits next year.

Yesterday, the Australian share market closed relatively flat following modest losses on US markets on Monday.

The benchmark S&P/ASX200 index had fallen 6.2 points, or 0.12%, to 5005.6, while the broader All Ordinaries added 0.5 points, or 0.01% to 5075.9. At 7.20am on the Sydney Futures exchange, the September share price index futures contract added 34 points to 5050.

Key Economic Facts and Figures

Today, the focus will be the release of Australian Bureau of Statistics June quarter consumer price index (CPI). The CPI is forecast to come in at 1.3 per cent for the June quarter, lifting the annual rate to 4.3 per cent from 4.2 per cent in the year to March. But economists say recent comments from the RBA suggest it's less likely to raise rates again, regardless of whether inflation remains above its target band of between two and three per cent.

In Canberra, the Department of Employment, Education and Workplace Relations skilled vacancies survey for July is revealed.

According to a survey of 2000 Australians by Retail Financial Intelligence for mortgage insurer, Genworth Financial, a quarter of respondents use over half of their income to meet their mortgage repayments. The figure is more than double the result of 12 percent recorded last year. A survey commissioned by lenders' mortgage insurer Genworth Financial has found that 27 per cent of home buyers anticipate mortgage repayment problems.

Most economists expect concerns about inflation will persuade the Reserve Bank of Australia, which gets vital inflation data today, to keep official interest rates at their current 12-year high of 7.25 per cent until next year.

IPO and M&A News

Late yesterday, National Australia Bank revealed to the stock market that it was no longer involved in the "sale process" involving parts of the giant Dutch bank ABN Amro (ASX:ABO). Commonwealth Bank (ASX:CBA) says it has entered exclusive talks to acquire the local arm of investment bank ABN Amro. ABN Amro claims to be Australia's largest full service retail stockbroking and wealth management organisation, with more than 300,000 clients and 763 staff in 52 offices nationwide. Banking analysts valued the ABN business from $500 million to $1.3 billion.

Australia's largest gas and electricity supplier AGL Energy Ltd (ASX:AGK) said it has snapped up the Australian wind farm interests of Allco Finance Group Ltd (ASX:AFG)for $12.5 million. AGL said under the agreement it will acquire Allco's seven development projects in Queensland, New South Wales and South Australia.

Fortescue Metals Group (ASX:FMG) is considering a package worth more than A$1 billion from Chinese steelmaker Baosteel to fund a major expansion of its iron ore operations in Western Australia's Pilbara region. Fortescue recently achieved practical completion of the A$2.8 billion project, which lifts a range of restrictions associated with its current funding arrangements, and allows it to seek further financing.

Important Corporate News

Macquarie Group Ltd (ASX:MQG) says its profit for the three months ended 30 June 2008 was lower than the record result achieved in the June quarter of 2007, when market conditions were very strong.

Energy group Altona Resources plc (LSE:ANR), the UK-listed Australian company which expects to list on the local exchange later this year, has extended an agreement with BP Australia Pty Ltd to develop a project in South Australia.

BHP Billiton (ASX:BHP) has booked full year production records for seven of the many commodities it sells, despite higher costs and supply disruptions, as global demand for resources remains strong. BHP said production for the 2007/08 year was significantly up in 13 commodities, with records achieved in seven commodities.