[R]3:00AM New York, 7:00PM Sydney - ASX 200 index lost 0.9% after financial stocks declined.[/R]

Market Sentiment

ASX 200 index lost 0.9% or 48.2 to close at 5,558.40.

The Preliminary market turnover was 1.26 billion shares worth $5.78 billion, with 447 stocks moving up, 748 moving down and 336 unchanged. Telstra was the most actively traded stock with 50.7 million shares worth $240.7 million.

Market Driver

Australia and New Zealand bank, also known as ANZ bank, share sank to a two year low today after the bank announced that profit growth for this year was likely to be affected by rising credit costs. The bank fell 6.1% resulting in it pulling down other financial stocks.

The bank announced a one-time charge of $220.68 provision to cover any potential loss from an exposure to a U.S. based bond insurance companies. The bank said it was hopeful that a substantial portion of the $200 million provision might be recovered in the future.

The press release noted the following.

The significant increase in derivative market credit spreads and volatilities has resulted in a positive mark to market position with the sellers of the credit protection. However one counterparty, a US mono-line insurer, has been downgraded to a CCC credit rating. The uncertainty around the ability of that firm to meet its obligations under the hedging agreement has resulted in an accounting requirement to raise an Individual Provision of US$200 million based on the current mark to market exposure in that investment.

The effective economic impact if the mono-line insurer fails is that ANZ takes on direct exposure to a high quality portfolio of corporate names. In fact, this portfolio has a higher
proportion of investment grade corporate bonds than ANZ’s existing Institutional portfolio. For an actual loss to emerge, around 20% of names within the portfolio would need to default. This would only occur in an extreme environment in which a significant number of companies defaulted globally, which is not anticipated under any current economic scenario.

In addition to the mono-line exposure mentioned above, ANZ has credit protection intermediation arrangements with a number of counterparties all rated AA or better. The mark-to-market counterparty exposure is US$667 million, although the matched nature of the trades removes the market risk.

In addition the bank said it had incurred a $90 million charge to the collective provision after a significant credit rating downgrade for one large commercial property client although the situation did not warrant an individual provision.

The company said a review indicated that the factors driving the client''s credit rating downgrade were specific to that client, with the remainder of the commercial property portfolio in good shape. Analysts believe that the troubled client is Centro Properties Group. ANZ was reported to be having a $500 million unsecured exposure to Centro.

Despite the challenges, the bank remained optimistic of exceeding last year''s increase of 11% in its full year profit.

Gainers and losers

Of the ASX 200 index stocks, Challenger Finance led the gainers with a rise of 9.4% followed by increases in Sundance Resource of 8.5%, in Mincor Resources of 5.8%, in Fortescue Metals of 5.2%, and in Murchison Metals of 5.2%.

Of the ASX 200 index stocks, Centro Retail Group led the decliners with a fall of 9.5% followed by losses in APN/UKA European of 8.5%, in Macquarie DDR of 7.9%, in Just Group Limited of 7.1% and in AED Oil of 7%.

Centro share buoyed by extension

Australia-based mall owner Centro Properties Group''s stock recovered 17% after last Friday''s trading halt after the company got a reprieve from its creditors. The company obtained two week extension from last Friday''s deadline, to refinance $3.9 billion debt. The creditors including Commonwealth Bank of Australia and National Australia Bank all confirmed the extension in separate statements.

Centro also got another reprieve on another $1 billion debt that was also due on Friday but was extended till April 30. The company which owns more than 700 U.S. malls has been battling to raise money to refinance short term $3.9 billion in debt.