Shares slump 2% on European debt fears: Economy Roundup

The Australian sharemarket has slumped 2% this morning, following weak leads from Wall Street last week as investors’ fears over European debt problems resurfaced.

The benchmark S&P/ASX200 index was down 100 points or 2.17% to 4511.1 at 12.00 AEST, while the Australian dollar opened one cent lower to US88c.

ANZ shares fell 1.8% to $22.41, as Commonwealth Bank shares dropped 1.8% to $52.75. Westpac plummeted 5% to $23.64, as NAB lost 0.9% to $25.15.

The pessimism has been caused by comments from German Chancellor Angela Merkel, who said over the weekend that the $US1 trillion rescue plan for Greece is only a temporary fix.

Merkel has said there is a gap between Europe’s leading and struggling economies, and a strategy must be developed to bridge struggling countries with stronger ones.

“We’ve done no more than buy time for ourselves to clear up the differences in competitiveness and in budget deficits of individual euro zone countries,” she told the German Federation of Trades Unions. “If we simply ignore this problem we won’t be able to calm down this situation.”

Lending finance has continued to fall, with owner occupied housing commitments falling by a seasonally adjusted 3.7% to $13.5 billion, according to official figures.

Total personal commitments fell by 1.3%, with revolving commitments falling 1.6% and fixed lending commitments dropping 1.1%.

Additionally, total commercial commitments fell by 1.1%, with revolving commitments up 18% and fixed lending commitments dropped 5.5%.

Mining giants BHP Billiton and Rio Tinto could revaluate their plans to merge Pilbara iron ore operations if an agreement is not made.

As reported by the Wall Street Journal, BHP chief executive Marius Kloppers said the project’s completion is being held back by the proposed introduction of a new tax on mining profits.

“I still want to do it,” Kloppers told the WSJ. “We have many hurdles to jump through, and the tax brings in uncertainty.”

The proposed plans from the two companies to merge their operations have sparked concerns from regulators, especially in the European Union. A deal is hoped to be struck by the end of the year.

Kloppers also said the company would investigate moving its operations elsewhere if the mining tax is introduced. “There is no geological scarcity of copper, iron ore, nickel or other minerals,” he said.

BHP warns shareholders over mining tax

Additionally, BHP chairman Jac Nasser has said in a letter to shareholders that the tax could upset the traditional stability and competitiveness of the Australian market.

“The risk is that Australia could now be seen by the rest of the world as a less stable and less competitive place for long-term investments,” he said.

“If this eventuates, the great work of Australians to build the strong economic foundation of the country over decades could be undermined, representing a crucial turning point for Australia.”

But the Federal Government is still prepared to negotiate with mining groups on the tax, resources and energy minister Martin Ferguson has told an annual conference.

“We are committed to putting in place a stable fiscal regime, competitively neutral with the rest of the industry, that will get coal seam methane and floating LNG off the ground,” he said at the annual Australian Petroleum Production and Exploration conference in Brisbane.

Ferguson added the Government is keen to see the coal seam gas and floating liquefied natural gas industries navigate through any issues the new tax may impose.

However, Treasurer Wayne Swan has also said the Government is committed to the introduction of the tax in 2012.

“The miners know in their heart of hearts that they are going to have to pay a bit more because the royalties regime has not kept pace with the value of this resource, which is 100% owned by the Australian people,” Swan told ABC Television.

“You see what we are doing is removing an existing tax, effectively a royalty, and replacing it with a new one which is a better tax, a more efficient tax, one that will grow the industry in the long run.”

Meanwhile, Elders has recorded a $165 million first half loss, improving on the previous corresponding period.

The company said the loss comes after a $328.8 million loss, while underlying net profit was at $1.1 million, up from a $21.8 million loss during the previous corresponding period.

“Accordingly, the company anticipates a substantial lift in its earnings in the second half, given suitable rainfall in Western Australia and suitable market conditions,” Elders said in a statement.

“This is expected to be sufficient to support the achievement of the prospectus forecasts… for underlying earnings and profit to shareholders.”

ANZ completes RBS transaction

ANZ has completed the acquisition of the Royal Bank of Scotland’s retail and commercial businesses in Singapore. The transaction cost $687 million.

“ANZ is now a leading international bank in Singapore with more than 300,000 customers and strong positions in retail banking, wealth management, private banking, commercial and institutional banking,” Asia Pacific, Europe and America chief executive Alex Thursby said in a statement.

Leighton Holdings has recorded a net profit of $400 million for the nine months to March 31, up from $220 million in the previous corresponding period. Revenue was $13.3 billion, a $400 million drop.

“These are strong results for the nine months which reflect solid performances in mining and infrastructure, offsetting the difficulties in property and the Middle East – particularly Dubai,” Leighton chief executive Wal King said in a statement.

“Our diversification strategy has helped sustain the business through the worst of the global financial crisis (GFC) and, after the residual GFC issues impacting property and the Middle East subside, we see the growth in our core markets continuing to strengthen.”