Australia | Sep 21 2007
By Rudi Filapek-Vandyck
It would appear the drastic actions undertaken by central banks across the globe are finally having the desired effect of returning confidence to global money markets. In the US, market watchers have observed a drop in the “effective” Federal funds rate by 59 basis points to 4.74% in the past two days.
In Australia the Reserve Bank (RBA) has been draining cash from the short term money market for three days in a row now, displaying a clear proof of confidence liquidity inside the banking system is recovering.
Market watchers at ANZ Bank report more signs of confidence returning to money markets. ANZ notes the Fed’s aggressive move on Tuesday has significantly impacted the price of US dollar asset-backed commercial paper with the yield curve for this paper shifting down by more than 50 basis points in recent days.
The spread between USD commercial paper (CP) and asset-backed commercial paper (ABCP) has also narrowed, from a peak of 94 basis points on 13 September to 39 basis points overnight for 30-day paper, says ANZ.
While things are still far from “normal” –if market conditions are ever to return to where they were few weeks ago- it would seem that gradually improving debt and credit markets will also lower the risks for more Northern Rock-alike defaults.
Analysts at BNP Paribas warned their clientele earlier this week the next Northern Rock could well come from Australia. This opposes the general view among local experts that Australian banks are well protected without having too much of an exposure to US housing markets in the first place.
But what about the local non-bank lenders?
Wilson HTM analyst Andrew Hills has reportedly issued a report on RAMS (RHG) this week suggesting the shares are currently only worth about $0.90 (this amounts to about 10 times 2009 forecast earnings per share) given the many uncertainties. But what has caught the attention of investors is that Hills has calculated RAMS will simply run out of cash by December of it cannot find cheaper access to funding.
Investors are largely ignoring Hills’ warning today with the shares surging more than 5% to $0.80 in an overall weaker share market.
The shares hit a low of $0.55 earlier this month. RAMS listed in August at $2.50 a share.