NAB, Wesptac, ANZ, CBA Shares Drop as Debt Crisis Hit the Market

Submitted by Stock Market News on 24 May, 2011 - 11:41

Shares from National Australia Bank's (ASX:NAB), Westpac (ASX:WBC), ANZ Bank (ASX:ANZ), and Commonwealth Bank (ASX:CBA) plummet as fear of debt crisis spread in Europe. Markets claim that Greece will restructure due to a $434 billion debt pile, equivalent to 160 percent of the national output.

Greek prime minister George Papandreou believes otherwise. The ministers will have a meeting to raise funds such as tax increases and privatisation of state assets. Failure to make debt payments according to schedule may lead European banks to revalue their holdings of Greek Bonds, which will in turn trigger more problems for funding markets. Greece's long term credit was cut down from B+ from BB+ last week and was put on negative watch by Fitch.

Banks were hit hard with NAB shares dropping 2.7 per cent to $26.66, Westpac 3 per cent to $22.07, ANZ 3.4 per cent to $22.02 and Commonwealth Bank fell 1.4 per cent to $51.42

Mike Smith, chief executive of ANZ, said that Greek's downgrading may raise funding costs as debt volatility hit the market. "Europe frankly shows no sign of actually sorting out its problems," he said, which will "mean raising funds will just be a bit more expensive. That is the reality."

Deposits only fund 60 percent of their lending book, so banks need to borrow billions of dollars from global money managers to make up the shortfall. If global wholesale funding shuts down they will become vulnerable, forcing the government to step in to offer a guarantee scheme. This issue became the focus last week as the four bank's credit ratings were downgraded, raising concerns on their reliance to wholesale funding.