Business

Saturday November 8, 2008

Aussie banks’ exposure to two failed firms at US$1bil


SYDNEY: Australian banks’ exposure to two failed local corporates has increased to at least A$1.6bil and is likely to add to pressure on the banks to raise more capital in the near term.

Commonwealth Bank of Australia Ltd (CBA) was the latest bank to release yesterday details of its exposure to childcare group ABC Learning Centres Ltd, which this week surrendered control over the company to its creditors.

CBA put its total exposure at A$690mil, including A$240mil in senior debt and about A$450mil in hybrid notes after writedowns on the hybrids were revised up.

The banks’ disclosures follow the collapse this week of ABC and investment firm Allco Finance Group Ltd after both failed to refinance their debts in the face of the global credit crisis.

Australian banks have so far largely weathered the subprime mortgage crisis and global credit squeeze without too many major problems, unlike their peers in the United States and Europe.

But with growing signs of a global recession, even Australian banks would be forced to restructure their businesses and raise more capital, analysts said.

“We expect continuing cyclical downside earnings from the deteriorating environment and then significant restructuring headwinds regarding capital as well as growth prospects,” ABN Amro banking analyst Jarrod Martin said.

He expects banks to raise capital in all forms, including dividend reinvestment plans, hybrid capital and equity. — Reuters


Latest business news from AP-Wire

  • E-mail this story
  • Print this story