Commonwealth Bank tumbles on debt fears, Rio dumps big project, advertising spending falls: Economy roundup

Commonwealth Bank shares have tumbled as much as 12% to $25.75 after it revealed provisions for bad debts may rise up to $2.5 billion. The $2.5 billion estimate is based on the bank’s prediction that 0.6% of its gross loans may become bad debts.

Commonwealth Bank shares have tumbled as much as 12% to $25.75 after it revealed provisions for bad debts may rise up to $2.5 billion. The $2.5 billion estimate is based on the bank’s prediction that 0.6% of its gross loans may become bad debts.

The bank’s failure to tell some investors about the rise in provisions was behind the embarrassing botching of a $2 billion capital raising.

The bank originally set a share price of $27 a share, but was forced to drop that price to $26 after negative reactions from shareholders.

The Australian sharemarket has fallen after a disappointing night on Wall Street. The benchmark S&P/ASX200 index was down 37.9 points or 1.06% to 3532.7 at noon AEDT.

Overnight the Dow Jones Industrial Average slipped back 1.12% to 8824.34. Oil prices also dropped to a four-year low below $US40 a barrel after news OPEC will cut production by a record two million barrels a day.

But the dollar has reached a two-month high at US70 cents, after the US Federal Reserve’s decision to cut interest rates.

Woolworths lost 3.2% to $24.92, while Westpac slipped back 1.2% to $15.53. But Telstra rebounded slightly after two days of heavy losses, gaining 0.8% to $3.59.

NAB lost 0.6% to $19.20 after news the bank will integrate its group and Australian region chief executive roles, with group chief Cameron Clyne to take the position.

Current Australian chief executive Ahmed Fahour will step down and move to a “group role”. Clyne says the decision was based on an assessment of market conditions and after shareholder consultation.

“My decision to expand the role of group CEO to include responsibility for the Australian based business has a very simple objective; I want to be closer to customers, employees and those leading our various Australian businesses as they represent a significant majority of group revenue and profit,” Clyne says.

NAB is also still in talks regarding the acquisition of non-bank financial group Wizard Home Loans.

Meanwhile, mining giant Rio Tinto says it is unable to finance a 49% share in an aluminium joint venture in Saudi Arabia because of the global financial crisis.

“Rio Tinto… will not be able to participate in the capital of Maaden’s integrated aluminium project,” Saudi Arabian Mining, also known as Maaden, said in a statement. Maaden holds the 51% share of AlumCo, the group formed with Rio Tinto to develop the Saudi smelter.

And in a sign the advertising sector is drying up, the Ten Network says its underlying earnings fell 25.2% in the first quarter of the fiscal year 2008-09.

Earnings before interest, tax, depreciation and amortisation fell to $91.6 million from the same time last year, while revenue was down 10.6% to $292.3 million.

Chairman Nick Falloon told shareholders the advertising market is continuing to be a challenge.

“As we flagged at our full year results in October, the revenue market continues to be challenging and visibility remains short across the sector. Ten Holdings is not immune from this tough economic operating environment.”