Shares, super hit as credit crisis bites

The global economic storm wiped out more than $38 billion yesterday as the Australian market's eighth straight day in the red showed there was nowhere to hide from the US credit crisis.
Australian superannuation investors will get no reprieve either, with their exposure to billions of dollars of so-called "kangaroo bonds" issued by embattled US financial institutions.
After last week's revelations that the four major banks have $US1 billion in outstanding loans to the US lender Countrywide, the Herald has learned that it and another US lender, Sallie Mae, along with the British mortgage provider Northern Rock, offered bonds worth more than $US2 billion to Australian investors.Stockmarket investors were again licking their wounds last night as the sharemarket slid another 2.5 per cent, with day eight in the red costing investors more than $38.5 billion. The market has fallen 13 per cent from its peak in November.
The slide was prompted by further losses on Wall Street after America's largest bank, Citigroup, wrote off another $US18 billion in troubled US mortgages.
"It's turned from a money market liquidity crisis to a more standard economic crisis," the chief economist with AMP Capital Investors, Shane Oliver, said yesterday.
Consumers with mortgages and credit cards will also keep paying the price for the global credit crisis, with their credit card bills inching higher and a continuing threat that banks may raise their mortgage rates again - regardless of Reserve Bank decisions.
The only bright spot is that continuing uncertainty reduces the chances of an official rate rise.
"I don't believe the Reserve Bank's going to run out there and jack up interest rates even further knowing that globally, you know, Rome's burning," the managing director of Aussie Home Loans, John Symond, said on Channel Seven yesterday.
Dr Oliver said the likelihood of a rise in official interest rates by the Reserve Bank next month was judged by the market as about 50/50.
Reflecting the broader impact on the economy, a key measure of consumer confidence, the Westpac-Melbourne Institute consumer sentiment index, fell 8.3 per cent for January after the five major banks lifted their variable interest rates by an average of 0.15 per cent. Behind the scenes, banks have been scrambling to push up rates on a wide range of their products as they seek to recoup higher costs as a result of the credit crisis.

Bank analysts estimate credit card users are paying about half a per cent extra above official interest rate increases over the past year. Business loans and fixed loans have also been pushed up by banks above increases in official interest rates.
Brett Le Mesurier, a banking analyst at Wilson HTM, said as long as the uncertainty continued, there remained the possibility that the big banks would raise their variable interest rates outside of any Reserve Bank move on rates. "It depends on how much more bad news comes out of the US; whether we have many more write-downs, more fears about banks lending to each other," he said.
The possibility of further increases due to the credit crisis was flagged by the Commonwealth Bank when it announced its 0.1 per cent increase in variable rates last week.
Mark Tierney, Macquarie Group's international economist, said there were positive signs in the US after the chairman of the US Federal Reserve, Ben Bernanke, indicated he was prepared to further ease official interest rates.
He said lower interest rates for US home borrowers, the Fed's moves to restore liquidity to markets and willingness of foreign investors to buy stakes in US banks had put the US economy in a stronger position.
"The pessimism is so thick you can cut it with a knife, and it's very hard to justify that amount of pessimism," he said.