Another black day for banks

National Australia Bank confirmed that most investors in its $850 million bond sale last week had pulled out after its news on Friday of up to $1.01 billion in US mortgage losses.

And Suncorp-Metway denied rumours it had cut lending to finance brokers for vehicles, plant and equipment.

The bad news came amid another horror day for banking stocks, already weakened after NAB's announcement on Friday. The biggest five banks have lost $29.1 billion in market cap in two days, according to Bloomberg data.

ANZ chief executive Mike Smith said the bank's 2008 earnings per share would be down between 20% and 25% on 2007, reflecting the $1.2 billion the bank has set aside ahead of what are expected to be substantial losses in the second half. First-half provisions stand at $980 million - bringing total provisions to $2.18 billion. The likely losses will wipe out the 9% profit growth ANZ would have enjoyed without the provisions.

"The market is expecting bad-debt provisioning to increase, but the magnitude of the ANZ increase was a surprise," Evans and Partners chief investment officer Mike Hawkins.

Mr Smith said the news was "beyond disappointing", saying that despite the credit crisis, higher funding costs and higher food and oil prices, ANZ was "picking up steam". But investors apparently believed ANZ was doing anything but, hammering its shares down 11% after they dived 8.7% on Friday after NAB's revelation that it may lose more than $1billion ($A1.04billion) in US mortgage-linked securities.

There was also concern that the subdued outlook for the New Zealand economy would spell bad news for the other members of the Big Four, all of which have operations across the Tasman.

"The New Zealand deterioration has implications for all the banks to a varying degree," Mr Hawkins said.

The bad news continued for NAB last night when it emerged that most investors in its $850million bond sale last week pulled out after NAB's bad news on Friday. Asked why it had gone ahead with the sale so soon before increasing its provisions by $830 million on Friday, NAB said it would offer investors the option of withdrawing.

"They were told on Friday they could tear up their tickets if they wished," a bank spokeswoman said. "Thirty per cent have chosen not to do so."

About $850 million of ANZ's provisions flowed from the likes of Centro Properties Group, Bill Express and Opes Prime. Those events, and others, resulted in the commissioning of an independent review of ANZ's securities lending operation. Lend Lease chairman David Crawford is expected to complete the review late next month.

"Once the review is complete, I will take the strongest possible action to put these issues behind (us) once and for all," Mr Smith said.

Mr Smith continued to blame "legacy issues" for some of ANZ's woes. "What is really irritating is that we are having to spend so much time on remedial action," he said.

Mr Smith started as chief executive on October 1 last year, replacing John McFarlane.