Blame the banks. If you had to pick a sector of global markets that damaged value in the March quarter then it was the banks; from Australia, to Italy, UK and the US, these core financial groups of the world and individual economies were hammered. In some cases, they helped sink the market, such as in Australia and Italy (where a 15.4% plunge in the market can be traced to the collapse in bank stocks). Deutsche Bank, the German giant, lost 29% in the quarter, while Swiss giants UBS and Credit Suisse lost 15% and a nasty 34% in value respectively (the latter found some dodgy securities buried in its accounts a few weeks ago that added to the already big losses and forced the bank to cut more jobs). In Britain, HSBC shares dropped 24.8% over the first quarter and Standard Chartered slid a worrying 31.4%. Barclays was almost as bad, losing 30% since January 1. In the US the toll was just as terrible; Goldman Sachs shares dropped 13%, Bank of America, 20%, Wells Fargo, 10%, and Morgan Stanley, 21%.
And in Australia? Well, ANZ lost 16%, NAB, 12.4%, Westpac, 9.5% and the Commonwealth fell 12%. But the standout, sector leading loser was Macquarie Group (despite expectations of a record profit for the year to March 31). Its shares fell 20.5% in the March quarter, which was in line with the losses seen in other banks with a heavy investment banking focus. There are new forecasts of a massive fall in first-quarter trading revenue and profits for these big investment banks, which is why Macquarie was the worst performer among Australia’s big banks. In Australia the big banks have made a rotten start to the new month and quarter this morning — all four lost close to 2.3% or more in value in the first 30 minutes of trading. That’s wiped billions of dollars from their value and forced the ASX 200 down 1.5% or 75 points at 10.30am. — Glenn Dyer
March, a quarter of two halves. Sorry for that cliche, but the three months to March 31 were certainly amazing for investors. A mad, bad slide in the first six weeks, and a rapid rebound for no apparent reason, except the slide in the value of the US dollar and an easing of fears about the number of interest rates in the US this year. Our market rose 4% in the quarter, but is still down 4.2% for the quarter. Markets in the US are up for the quarter and year, or close to breaking even. European markets fell 7.7%, Shanghai more than 15%, Tokyo lost 12%. US bonds experienced their biggest fall in yields for four years (safe haven in a rising market, go figure). The Aussie dollar rose by 5% and topped 77 US cents on the last two days of the quarter for the first time since the second quarter of last year. Gold had its best quarter in 30 years – up 16.4% – oil rose 4% over the quarter, but soared from lows in early February around $US27 a barrel. In fact prices jumped 13% in March alone. — Glenn Dyer
What does this mean? Can anyone explain this comment yesterday from Georgette Nicholas, the newish CEO of lenders mortgage insurer Genworth Mortgage Insurance Australia?
“This capital management initiative represents another important step in our ongoing journey to manage our capital base at a level which balances our objectives of meeting our policyholder obligations, delivering long-term shareholder returns and having the flexibility to grow the business in the future …”
Almost incomprehensible, management speak at its best — or worst. The background. Genworth told the ASX yesterday that it is planning a $202 million capital reduction in the form of a 34 cents per share distribution and is also considering a $48 million share buyback. And if shareholders do not approve its distribution and share consolidation resolutions at the May 5 annual general meeting, it may instead look at a $250 million buyback. That sounds routine, but if you go back to the company’s full-year results announcement in February, you find that Genworth has been experiencing a sharp slowdown in new insurance written and gross premium income — so much so, that gross premiums could be 40% lower by the end of this year than they were at the end of 2014. The reason is easy to find: the slowing house boom and the sharp fall in buyers with loans with a loan-to-valuation ratio of 80% or more (LVR loans of 80% or more need lenders mortgage insurance for the first three years of the loan).
In other words, Genworth needs less capital to support its shrinking business, so the surplus will be distributed to shareholders — and the most eager to receiver it will be the US parent, which owns 52% of its Australian arm. The US company, Genworth Financial Inc, has been a loss-making loser in 2014 and 2015. It will pick up around $130 million from any return, which is a handy boost. But as to the first question, the CEO’s jargon-filled statement really means Genworth’s local arm is shrinking itself to handle a smaller future. Genworth’s shares are down 22% in the past year. That’s despite many analysts saying the company has been an undervalued bargain. Certainly a self-liquidating one. — Glenn Dyer