Super savings savaged

And returns for Australia's 30 million super accounts may not improve in the first months of the new financial year, after shares took another hit amid warnings of billion-dollar losses at two of Australia's biggest banks.

In the latest bad news to come from a big bank, ANZ said it would set aside $1.2 billion to cover expected losses stemming from Australia's slowing economy, worsening economic conditions in New Zealand, and bad loans to the likes of Centro Properties Group, Bill Express and Opes Prime.

It came after earlier ANZ provisions totalling $980 million for the first half of the year, and followed NAB's revelations on Friday that it expected to lose more than $1 billion on investments linked to the troubled US mortgage market.

The news sparked another day of panic selling on Australia's sharemarket, with ANZ shares losing 11% to close at just $15.81 and NAB shares falling almost 3% to $25.80. The benchmark S&P/ASX200 index slipped back below the 5000 milestone to 4922.1 points.

Shares in both banks were hammered on Friday after NAB's announcement. According to Bloomberg data, Australia's five biggest banks have lost a combined $29.1 billion in two days.

ANZ chief executive Mike Smith said the Australian economy would continue to slow over the next 18 months. On Friday, NAB chief executive John Stewart warned that the global economic gloom emanating from the US mortgage crisis - which has helped strip Australian shares of about 17% of their value over the past financial year - was not nearly over.

The extent of superannuation losses over the year was starkly illustrated by industry rating group SuperRatings, which calculated that, among major super funds in the SR50 Index, the median balanced fund lost 6.39% over the 12 months to June 30. June was the worst month since compulsory super began in 1992, with the median balanced fund losing 3.9%.

Figures from Industry Super suggest that those in industry funds fared better, with an average one-year negative return of 5.78%, than those in retail funds, at -9.84%.

It will be a particularly distressing result for the approximately 1.3 million Australians in their early 50s, some of whom would be considering retiring and accessing their super.

The wide range of lower returns mirrored the volatility that hit different investment classes over the year.

The best performing fund, Vision Super - Balanced Growth, lost 1.7% for the year to June 30, while Legg Mason Corporate MasterTrust fell 15.9% over the same period.

Another six months of negative returns could not be ruled out, said senior fund manager Angus Gluskie, of White Funds Management.

"I don't think we've seen the bottom of the market," he said, noting higher inflation could dampen profits further.

The recent sharemarket falls will not only inflict more damage on Australian super funds, but also batter the portfolios of the nation's 6 million retail shareholders.

It will mean more financial stress at a time when annual inflation is running at 4.5% and mortgage interest rates - pushed by banks well beyond the Reserve Bank's official cash rate - are at their highest in more than a decade.

The banks' woes provoked a warning from Treasurer Wayne Swan, who said that Australia was "not immune" to events in global financial markets. He revealed that both he and the Prime Minister had sought reassurance from regulators over the weekend, including the RBA, that Australia's most important financial institutions were in sound health.

When asked whether poor performances should be reflected in remuneration packages of executives and boards, Mr Swan said it was important that senior bank figures "are held accountable for the decisions that they take".

But Australian Shareholders Association chief executive Stuart Wilson said it would be some time before shareholders could demand accountability from bank chiefs, with the annual meeting of the ANZ in December and the NAB meeting in February next year.

Retail shareholders had been concerned for some time as they watched remuneration levels for bank chiefs spiral out of control, Mr Wilson said.