What’s a billion? Foster’s Group is finally going to separate its beer and wine businesses, at a cost of more than $1 billion in write-downs. That finally confirms that the move into wine — done one or two managements ago —  is a complete and utter dud. “Foster’s expects to recognise a non-cash impairment charge of $1100 million-1300 million (pre-tax) to the carrying value of its wine assets in the 2010 financial year,” the company said. The divorce might not happen if markets are too volatile or the economy weak, but it finally looks like happening. Foster’s says the huge loss is “paper” and won’t worry the banks, but shareholders are going to feel some pain and look like wearing the cost. “As a result of the non-cash impairment charge, the timing and payment of dividends over the next 12 months is expected to change, although the total amount received by shareholders is anticipated to be broadly in line with previous years,” Foster’s warned this morning. That means shareholders will eventually get about 27 cents  in dividends for the 2010 financial year, but the payments will be delayed. That’s so typical of Australian companies: management and board make the big deals, draw the big pay packets and bonuses (and golden parachutes when they leave or are jettisoned) and shareholders end up paying the cost.

US rates: another rough day on global markets with tens of billions of dollars in value wiped out. Big falls in Australia, Asia and Europe were first matched in the US, which then staged a late rebound. But the best indicator was the US 10-year Treasury bond yield. Overnight, it hit a 13-month low of 3.06%, lower than the 3.10% on May 6 when the Flash Crash happened on Wall Street. It bounced to 3.16% by the close, which saw the Aussie dollar jump back over the 82 US cent mark and heading towards the 83 cent mark. Yields on all other notes and bonds also fell, with the two-year bond yielding 0.72%, not far from its record low of 0.65%. A month ago the 10-year bond yield was closing in on 4%.

House price watch: US house prices fell over the first quarter of this year. But they are still just a bit higher than a year ago. According to the S&P/Case-Shiller nationwide index for March, home prices fell 3.2% quarter-over-quarter but have still managed to climb 2% year-on-year. The index continued to show weakness despite very low mortgage interest rates and tax incentives to encourage home purchases. Those incentives saw sales of existing houses jump more than 7% in April. But more than half all sales in the month were to first house buyers taking advantage of the assistance packages. Two other indexes tracked by Case-Shiller registered declines for March, 0.5% for its index of 20 major cities and 0.4% for the 10-city index. Las Vegas saw a 12% fall over the past 12 months and Detroit prices were down 4.6% since March 2009. But there were some few winners led by San Francisco, where prices have jumped more than 16% in the past year. Prices are nearly 31% below their July 2006 peak, but they are up nearly 3% from the April 2009 bottom.

US confidence: well, the worsening of the euro crisis, Flash Crash and Wall Street falls seem to have left US consumers unmoved in May. The US Conference Board said its Consumer Confidence Index jumped to 63.3 in May, the highest level since March 2008, when it was 65.9. The index rose from a downwardly revised 57.7 in April. The Conference Board said the survey cut-off date was May 18, meaning that the data took into account the Flash Crash and the ongoing European debt crisis. The index has been recovering slowly since reaching a record low of 25.3 in February last year, but was still far from a reading above 90, which indicates the economy is stable, and 100 or above, which indicates strong growth. The expectation index, which measures consumers’ outlook over the next few months, rose to 85.3, the highest level since August 2007. The question now is whether confidence holds at these levels into June.

UK watch: the UK economy grew more than previously estimated in the first quarter as rebounding investment and the biggest jump in manufacturing for four years strengthened the recovery. GDP rose 0.3% from the final three months of 2009, compared with an initial measurement of 0.2%. That makes an annual rise of about 1.2%.

Euro watch: March industrial orders for the eurozone and the wider EU jumped sharply as they recovered from the impact of the snow and very cold winter. Eurozone orders rose 5.2%, while they were up 5.9% in the  27-country EU. Compared with March last year, industrial new orders jumped by nearly 20% in the euro zone and by 20.7% in the EU. The highest increase was registered in Denmark, up by 20.6%, but Portugal recorded the sharpest monthly drop of 9.9%. German orders were up 5.7%. Greece saw a 11.7% rise.

Japan watch: Japan might be struggling with deflation, high unemployment, indifferent retail sales, high government debt and deficit, but that hasn’t stopped it continuing as the world’s biggest creditor nation for a 19th consecutive year. According to figures from the Ministry of Finance yesterday, Japan’s net foreign assets hit a record high of 266.2 trillion yen ($US2.958 trillion) at the end of last year. That’s up 18%, or 40.7 trillion yen, thanks to an increase in Japanese investments abroad and the yen’s decline against the dollar and the euro, which inflates the yen-denominated value of Japan’s foreign assets. The Ministry said China, the world’s second-largest creditor nation, had net foreign assets of 167.7 trillion yen at the end of last year ($US1=90 yen).

Apple watch: Apple must have a new iPhone coming because suddenly Wal-Mart in the US has lots of the 16GB 3GS models to flog at $US97. That’s $US102 under the list price. The deal from Wal-Mart requires a two-year contract with AT&T, iPhone’s exclusive US telco. Industry analysts say that worldwide smart phone sales topped 54 million in the first quarter of this year, up nearly 49% from a year ago. Apple has also reportedly stopped shipping the small 8GB phone to outlets. The new phone is tipped to be revealed on June 7.

Bank watch: according to a Swiss ratings group, some of the world’s major banks are still basket cases. No shock, Sherlock, but Independent Credit View did surprise by saying that the world’s banks need to find $US1.5 trillion in new capital by the end of next year. Now much of that will come from retained earnings, lower provisions and losses, as economies recover, but there will still be a large black hole, simply because the recovery won’t be strong enough. Among the 58 banks in the study, the group named Allied Irish Bank, Bank of Ireland and Royal Bank of Scotland as being very short of capital. All three are owned or controlled by their respective governments, which will have to fund them if the markets refuse. A fourth needy bank is Commerzbank, 25% owned by the German government. The study compared estimated capital needs for the end of next year with capital ratios reported at the end of last year. The analysts took into account the banks’ earnings estimates for this year and next, forecasts for loan and provisions growth as well as an increase in the tangible common equity ratio to 10% from the average of 9% at the end of December. The study also didn’t account for any higher capital needs by US banks after the new regulatory regime starts.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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