More companies raise cash ahead of recession, shares gain ground: Economy roundup

The rush by big companies to raise money to shore up their balance sheets ahead of the recession is continuing.

Property giant Westfield is the latest company to embark on a share placement to raise $2.9 billion to strengthen its balance sheet and repay debt. The company is now in a trading halt ahead of the placement, which will offer 276 million securities at $10.50 each.

“The proceeds of the placement will further strengthen the group’s balance sheet through the retirement of debt and will position the group for potential acquisitions,” the group said in a statement.

Last week Westfield revealed that it would be forced to write down the value of its property portfolio by around $3 billion.

Qantas shares have entered a trading halt, with most analysts expecting that the company will also launch a capital raising of between $450 million and $1 billion.

Shares higher

The Australian sharemarket has opened 1% higher today ahead of the expected cut to the official interest rate later this afternoon.

The benchmark S&P/ASX200 index was up 75.2 points or 2.15% to 3572.6 at 12.00 AESDT.

NAB shares jumped 4.1% to $19.47 while Westpac also gained 6.1% to $16.25. BHP Billiton rose 2.6% to $30.79 as ANZ gained 4.5% to $13.86.

Commonwealth Bank shares have gained 8.4% to $28.68, after news the company announced it expects a 16% drop in first-half profit – a figure 20% above industry consensus.

The bank said in a statement the figures indicate a net profit of around $2 billion. Net profit after tax is also likely to exceed $2.5 billion, up 9% from last year.

Chief executive Ralph Norris says the deteriorating economy will make a full outlook hard to forecast. “I expect economic and operating conditions to become increasingly challenging, which makes the outlook extremely difficult to predict.”

But the dollar hit a 10-week low ahead of today’s interest rate decision, trading at just US63 cents.

Overseas, Wall Street suffered losses as uncertainty grew over the new Obama administration’s ability to curb bank losses. The Dow Jones Industrial Average fell 64.11 points or 0.8% to 7936.75.

Oil prices also slipped back to $US40 a barrel.

Keating calls for bold moves to save economy

Meanwhile, a global political and economic transformation is required to overcome the financial crisis, former prime minister Paul Keating says.

“What we need is a completely new global political and economic settlement,” Keating told ABC’s Lateline last night.

“Get rid of the old G7. We’ve got to get rid of the old IMF. We’ve got to bring the surplus countries into the political framework. The G7 is made up of debtor countries, countries like the United States, Britain, France, Italy – these are all borrowers.

“There’s no surplus countries in that, and if you look at the structure of the IMF, the Chinese get 3.7% of the vote. There is just no way the communist Chinese Government is going to hand over control of their currency and their political fortunes to a Washington-based, US Treasury-run institution, so unless there is going to be a totally new settlement … we are not going to get out of this.”

Keating also said the global recession is “a catastrophe”.

“It’s way worse than it appears. We’ve had an expansion of credit running for 60 years, from 1947 to 2007. This is the first time – 2008 and then 2009 – that we have had a contraction of credit.”