Commonwealth Bank warns on higher funding costs, Concerns over ASX merger: Economy roundup

The Commonwealth Bank has warned that higher funding costs will hurt Australian banks in the short term and the sector is facing significant challenges.

“The net result is that funding costs are now significantly higher for all Australian banks than they were prior to the GFC, and this is likely to remain an issue for all banks in the short to medium term,” chief executive Ralph Norris said at the company’s AGM.

Norris said the company is replacing cheap debt with debt priced at up to 10 times higher margins, but claims it is one of the financial institutions least affected by the changes.

“Despite these challenges and uncertainties, I am optimistic about the medium-term outlook for Australia and the group’s ability to deliver superior returns for our shareholders,” Mr Norris said.

“Our good financial performance, our strong competitive position and our conservative approach to capital, funding, liquidity and provisioning, all mean we remain well placed to meet these challenges from a position of relative strength.”

Commonwealth Bank chairman David Turner also said the company remains conservative regarding its prospects in 2011 due to the economic troubles in both Europe and the United States.

“These risks have not helped domestic business and consumer confidence, and both remain fragile. Evidence of these is a slowing in the underlying momentum of our business at the end of the 2010 financial year,” Turner said.

“This has continued into the current year, with underlying credit growth in Australia slow, particularly so for business lending, where our customers remain cautious.”

Meanwhile, the Greens have said they hold concerns regarding the $8.4 billion takeover of the ASX by the Singapore Exchange.

“The Greens will not support any move to exempt the 15% shareholder cap on the Australian Stock Exchange to allow it to be taken over by the Singapore Exchange unless the benefits can be clearly proven,” leader Bob Brown told Reuters.

“We want to know what the impact will be not only on the Australian market and shareholders but also superannuation accounts and financial service and other workers.”

Westpac has said tax consolidation following its St George acquisition will add a further $685 million to statutory profit for 2010. The company said in a statement that cash profit, which excludes one-offs and non-cash accounting items, will not change because of the tax treatment.

Coca-Cola Amatil has said trading conditions in the third quarter have remained challenging due to falling demand but the company will still meet its guidance.

“Despite the tougher trading environment, we remain confident of meeting our earnings guidance with current trading tracking at 7-8% EBIT growth for the second half,” the company said in a statement.

Australian shares flat after Wall Street leads

The Australian share market has opened flat this morning, following solid leads from both Europe and the United States, where the Dow has finished on a five-month high.

The benchmark S&P/ASX200 index was down 20 points, or 0.54%, to 4689.9 at 12.10 AEST, while the Australian dollar settled after its surge overnight, moving back to US99.03c.

ANZ shares lost 0.3% to $23.82, while Commonwealth Bank shares fell 0.4% to $50.76. Westpac lost 0.2% to $22.90 as AMP lost 0.7% to $5.46.

Telco giant Telstra has said negotiations are progressing well to finalise the $11-billion agreement struck with the Government to sell its copper networks.

“We are making good progress,” chief executive David Thodey said at the Citi Australian Investment Conference in Sydney today.

Thodey also said that there is a “disconnect” between the valuation of Telstra shares, and the intrinsic value of the company, adding that the telco is well on track on its restructuring program.

The OECD has said there is a risk of asset bubbles emerging in recovering nations due to monetary easing policies. Angel Gurria, secretary-general of the OECD, said that the stimulus money used to bring nations back into growth could impact other areas.

“Yes, there is a risk,” he told Reuters. “Accommodative monetary policies in OECD countries are being exported to developing economies and that … can create bubbles and can create distortions.”

Gurria also spoke of a deal struck at the latest G20 meeting, which gave more voting power to developing nations.

“This agreement is a great vote of confidence in the G20,” he said. “Not only did the G20 deliver on the immediate task to stabilise the world economy in 2008 after the collapse of Lehman Brothers, but it is now resolving other issues which have stubbornly resisted collective action for years.”

US home sales increase, stocks at five-month high

Sales of previously owned homes in the US grew by 10% in September, according to the latest figures from the National Association of Realtors.

The organisation said the rise took sales to an annual rate of 4.53 million units, in a second monthly gain.

Meanwhile, regulars from the Federal Deposit Insurance Corp have said the foreclosure mess currently occurring in the US will not be cleaned quickly and could still negatively impact the housing market.

“I fear that the litigation generated by this issue could ultimately be very damaging to our housing markets by prolonging those foreclosures that are necessary and justified,” Sheila Bair, head of the Federal Deposit Insurance Corp, told a housing conference.

Currently many states are investigating whether banks evicted people from their homes without properly checking documentation.

However, on Wall Street stocks have performed well, with the Dow Jones Industrial Average reaching a five-month high. The index rose 0.28% to 11,164.05.