Banks inject billions to stop the rot

Desperate to avert a financial meltdown not seen since the Great Depression, world banks pumped an extra $A225billion into markets last night in a bid to shore up the international trading system.

As the worldwide credit crunch sparked a $29 billion rout at the Australian Stock Exchange yesterday, last night's extraordinary international rescue bid seemed to stop the downward spiral in Europe. Three days of losses were finally halted in early afternoon trading.

Analysts said the gains in European markets were largely the result of the massive cash injection.

The unprecedented concerted action by central banks in the US, Europe, Britain, Japan, Switzerland and Canada to staunch the bleeding saw the provision of a $US180billion cash line through currency swaps.

In Australia, the Reserve Bank has now pumped $11billion into the market, but there are fears over the health of the country's largest investment bank, Macquarie Bank.

Responding to the credit crisis yesterday, Australian investors retreated to the safe haven of gold the precious metal posting its biggest one-day price rise in nine years. Gold futures for December delivery put on $US70 an ounce, to end at $US850.50 an ounce.

With the bail-out of insurance giant American International Group failing to calm the storm affecting world markets, the benchmark S&P/ASX200 slumped by 114.9 points or 2.43 per cent over fears the crisis on Wall Street would continue.

An adverse ratings outlook by Standard and Poor's saw shares in Macquarie Bank slump to a near 512-year low of more than 23 per cent to $26.05, leading some analysts to question the viability of its business model.

Stocks in the US fell nearly 5 per cent and US financial stocks lost nearly 9 per cent.

Uncertainty about the Australian bank BankWest continued as its owner, Britain's largest mortgage lender, HBOS, said it would be sold to Lloyds TSB for $28billion.

And reports suggested last night the credit crisis may have claimed a new victim, with investment bank Morgan Stanley looking for help.

Prime Minister Kevin Rudd and Treasurer Wayne Swan reiterated yesterday that the Australian financial institutions were in a superior position to their international counterparts.

''The advice of the regulators is still that Australia's financial institutions are in sound shape, that the order of their balance sheets is strong,'' Mr Rudd said.

Mr Swan said Australia's largest four banks were among only 12 of the world's top 100 banks with an AA credit rating or more.

But Mr Rudd was forced to defend his decision to head to New York next week amid growing concerns about how shockwaves from the global credit crisis will reverberate in Australia.

The Opposition accused Mr Rudd yesterday of neglecting the country.

Liberal Senator Bill Heffernan listed 16 countries Mr Rudd had visited during his time in office, sparking a spirited defence from Government Senate leader Chris Evans, who said Mr Rudd was promoting Australia's interests abroad.

Mr Rudd said last night it was more important than ever for him to build relationships with crucial overseas players.

He met key officials including US Federal Reserve Board chairman Ben Bernanke, US Treasury Secretary Henry Paulson , World Bank president Robert Zoellick and International Monetary Fund head Dominique Strauss-Kahn during a visit to the US in March. ''I had a deep sense then that these relationships were going to be critical as the year unfolded,'' he said.

''I have been on the phone and had other meetings with a number of these individuals since then and it's very important that those discussions be renewed and there are concrete practical reasons for it.''

Mr Rudd accused new Opposition leader Malcolm Turnbull earlier in Parliament of talking down the economy. Mr Turnbull said yesterday he would not quite use the same terminology as the Reserve Bank governor, who had previously said ''... conditions in Australian banks are light years away from what's happening in other banking systems around the world''.

''The world is a much more connected place than that,'' Mr Turnbull said.

Positive news came with the issuing of figures yesterday showing Australian banks continued to have a low exposure to bad debt.

Reserve Bank figures showed the bad loans ratio of Australian banks at only 0.36 per cent in the June quarter, well below the decade average of 0.44 per cent. But the latest ACCI Westpac survey of industrial trends showed slowing job creation and confidence slipping to its lowest level in five years, prompting the Chamber of Commerce to call for further Reserve Bank rate cuts.

Unsolicited credit letters under fire

A new report has taken aim at unsolicited letters from banks, retailers and other lenders offering pre-approved higher limits on credit cards.

The report commissioned by the Consumer Action Law Centre says lenders are using psychological manipulation to encourage people to take on more debt.

The centre's Nicole Rich says the letters increase the chances that people will accept the higher limits.

"What these letters do is they use positive messages about how good it will be on a rainy day and how special you are as a customer to get the offer," she said.

"And they try not to use the word debt because that brings home what you're actually doing, which is potentially taking on much more debt."

Ms Rich says lenders are relying on loopholes in the law to send out unsolicited material.

"The problem is they then say that nothing should be done about it because they warned customers and all that customers need is more information so they can make their own decisions about these things," she said.

"At the same time they are using psychological manipulation that deliberately tries to make it more likely you will take up this debt even if it's not in your best interests."

Share market monstered in minutes

About $35 billion was wiped off the Australian share market in the first 10 minutes of trading.

The Australian stock market plummeted more than 3% after National Australia Bank took an additional provision of $830 million on its exposure to the US credit crisis.

The bank's shares fell as much as 13% in early trading, and it is on track to record its worst day of trading in seven years.

Bell Potter senior adviser Stuart Smith said the US had led the local market lower.

"The US was down considerably and we really did follow their lead,'' Mr Smith said.

"Obviously the market didn't like NAB's provision but we should have known that was coming.''

NAB debt provisions cause shares to tumble

The National Australia Bank has made provisions for a possible loss of $830 million on debt-related investments because of the global credit crunch and the slump in the United States housing market.

That is on top of $181 million NAB has already set aside to cover risky investments.

NAB chief executive John Stewart says losses are likely because of a rapid increase in mortgage defaults.

"Unfortunately the behaviour of the housing market in the US leads us to believe that the worst case scenario may not be too far away from the most likely scenario," he said.

"Now we see our dividend being unaffected by today's announcement and our capital position remains strong."

The announcement of the provisions means NAB shares dived more than 12 per cent in early trade, as sentiment worsened in an already nervous market.

Even before NAB's announcement, Australian shares were in for a rocky ride after steep falls on Wall Street overnight.

The falls were sparked by figures showing US home sales have slumped to a 10-year low and Ford's record quarterly loss of $US9.1 billion.

By 12:00pm AEST, the Dow Jones Industrial Average had plunged 2.4 per cent.

Other banks followed NAB's lead, dragging the ASX 200 3.2 per cent lower to 4,978 and the All Ordinaries index down 150 points to 5,039.

The Australian dollar was worth 95.64 US cents.

Anti-Gunns protest at Mac Bank's AGM

The Wilderness Society is protesting outside the Macquarie Bank's annual general meeting in Melbourne.

The society believes the bank is considering helping to fund the controversial pulp mill planned for northern Tasmania.

Protesters are dressed as Tom Cruise from the movie, Risky Business.

Geoff Law from the Wilderness Society says Macquarie is considering whether to become involved after the ANZ Bank's decision not to fund the mill.

"Well we've been told by people within the bank that they are looking to assist Gunns with a share issue later this year so that equity can be raised to fund the pulp mill and the bank is also considering getting involved in other ways," he said.

Home repossessions can be avoided: CHOICE

The consumer group CHOICE says some home repossessions could be avoided if people were more aware of their rights.

CHOICE says people facing repossession can often apply for an extension on their home loan.

Spokesman Christopher Zinn says many people do not realise they are allowed to make the application.

"It depends on the loan and the lender but at least it does give people other options, other options which at present they may not be aware of," he said.

"If people are going to be missing a repayment on their home loan the first thing they should do is contact their lender and ask what kind of hardship variations are available.

"They should also seek help from a financial counsellor and if more people did this earlier on in the piece there's no doubt there may well be fewer repossessions."

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