No getting off banking's roller-coaster

As the market continues to reverberate from the shock wave of National Australia Bank's exposure to the most toxic part of the US subprime housing loan crisis, there is one unfortunate side-effect of its announcement that investors will now have to live with.

As the market continues to reverberate from the shock wave of National Australia Bank's exposure to the most toxic part of the US subprime housing loan crisis, there is one unfortunate side-effect of its announcement that investors will now have to live with.

If shareholders in our big banks need any example of the increased roller-coaster ride they are facing daily they only need look at the ups and downs of Macquarie Group's share price over the past six months.

Despite few similarities to its Wall Street cousins, especially in the case of huge writedowns and equally huge losses from which Macquarie has so far escaped, the group's stock has been at the mercy of every piece of regular bad - and occasional good - news that has emanated from the US market of late.

Hardly a day goes by when Macquarie's shares take a dive, only to recover before dipping sharply again as the New York sharemarket responds to yet more fall-out from its own-generated credit crisis or to further signs that the US economy is sliding into recession.

Having expanded globally in the past decade and sought to take on the might of New York's global investment banks, Macquarie is now closely compared to them with every roll of the financial dice. It also does a lot of business in the US, which has a direct impact on its earnings so it's not hard to see why it is more exposed in investment terms to the share price movements of the likes of JP Morgan and Citigroup.

Nonetheless, it is also easy to appreciate some of the frustration being felt at Macquarie's Sydney headquarters when its share price takes on the alter ego of a yo-yo for no real appreciable investment reason.

Last Monday, for example, Macquarie's shares climbed 4.75 per cent to finish at $48.10 as the group prepared for its annual meeting two days later. The shares then slid $1.50 the next day to end 3.1 per cent down at $46.59.

Comments of a continuing "solid" earnings performance over the past couple of months at the annual meeting pushed the shares up 11.6 per cent to $52 before they climbed a further 2.5 per cent on Thursday to $53.30. But then came Wall Street's fall overnight after the news of Ford's huge losses and poor US housing sales figures and NAB's additional $830 million subprime investment writedowns.

NAB's 13.5 per cent swan dive on Friday pulled Macquarie's shares down 5.5 per cent to $50.38 although the group finished the week $2.28 ahead.

Such is the trading volatility that surrounds the 18th largest member of the ASX 200 and which now faces the second (Commonwealth Bank), the fifth (NAB), the sixth (Westpac), the ninth (ANZ) and the 16th (St George).

While the share prices of banks have come off sharply over the past nine months (as much as 40 per cent in many cases), they have been able to argue reasonably successfully that they had little or no direct exposure to the loan problems encountered by their American counterparts.

Even when ANZ owned up to the provisions it needed to make for the problems being encountered by a US monoline insurer and NAB's writedown of $181 million for its seemingly minuscule collateralised debt obligations difficulties earlier this year, the market took them at their word that their respective situations were contained.

But NAB's disclosures on Friday shattered that belief and with it undermined the confidence investors are likely to have in anything the banks have to say on such subjects in the crucial months to come.

That, in part, explained why NAB's shares fell off a cliff on Friday, taking with them $7 billion of its market capitalisation in the worst one-day fall experienced by the bank since the 1987 crash.

It also accounts for the fact that ANZ slumped $1.70, or 8.7 per cent, to $17.75 and for the lesser falls witnessed by the Commonwealth, Westpac and St George.

With the banks no longer able to rely on the assertion that the subprime debacle, as opposed to the global credit crisis, has little to do with them, just watch how their share prices react to the next bit of bad news on that front out of the US.

You might also pick up the growls of displeasure that are beginning to emanate from the boardrooms of NAB's rivals who are none too happy with the impact that its problems are already having on them.


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