Markets recoil amid Obama's shake-up COLIN KRUGER AND PHILIP WEN January 23, 2010
Sharemarkets were in retreat worldwide yesterday as investors grappled with uncertainty over financial changes announced by the US President, Barack Obama, promising the most far-ranging restructure of banking since the Great Depression.
The proposed legislation would prevent US bank holding companies from owning, or investing in hedge funds, private equity funds, or engaging in proprietary trading.
Many banks were not willing to comment yesterday given the lack of detail but investors were voting with their feet, sending the Dow Jones Index more than 2 per cent lower, Japan's Nikkei dropped more than 2.5 per cent while the benchmark ASX 200 was down 1.6 per cent.
"The President's got to get his legislation through the Congress, and maybe it will in the current climate. I don't know,'' said Duncan Fairweather, executive director of the Australian Financial Markets Association.
''But we haven't yet seen the detail of what he is proposing and we haven't yet seen the outcome of the legislative process, so it's all a bit of crystal ball gazing at the moment.''
Local bank shares led the market sharply lower even though the Treasurer, Wayne Swan, said such drastic reform was not needed locally.
"Australia did not suffer from the kinds of massive financial dislocations as the US suffered during the height of the global financial crisis,'' he said. ''So we're not considering the kinds of domestic changes announced by President Obama overnight.''
''Those announcements are separate to the G20 reform agenda that the Government has been working on in international forums.''
Not that the local banks could be accused of heavily engaging in proprietary trading, where banks risk their own money on the market. Last year Westpac's trading income accounted for only 5 per cent of net revenue. Commonwealth Bank's income derived from market investments was 4 per cent. That compares with 76 per cent by Goldman Sachs, according to a recent analysis by Southern Cross Equities.
The banking analyst of Southern Cross Equities, T.S. Lim, said that in addition to the low levels of trading exposure in Australia, NAB and ANZ had already been in the process of "de-risking" their books since the financial crisis first hit.
It was no coincidence Mr Obama's statement came on the same day Goldman Sachs announced a $US13.4 billion ($14.8 billion) profit for the year and set aside a $US16.2 billion bonus pool for its employees. The bonuses, deliberately tempered in the wake of outrage over bankers' pay, represent 35.8 per cent of revenues for the year, the lowest share since Goldman became a public company a decade ago.
Shares in Goldman Sachs dropped 4 per cent despite the record earnings, but it was not alone. JP Morgan Chase fell 6.6 per cent and Morgan Stanley slumped more than 4 per cent.
Britain's banks were also knocked by the Obama plan: Barclays shares fell 6 per cent and Royal Bank of Scotland was down 7 per cent. ANZ Banking Group led the decline among Australia's big banks, falling 61c, or 2.62 per cent, to $22.65.
Macquarie Group also fell strongly, down 37c, or 3.2 per cent, to $51.60.
The Financial Times reported that some global banks were already looking at the feasibility of moving their proprietary trading operations from the US to Europe to avoid the changes.
Europe may not provide a safe haven from Mr Obama's regulatory curbs though.
According to The Guardian, a British Treasury spokesman said: ''Countries are rightly taking measures to increase stability and reduce risk in the financial system.''
