Another weekend and another announcement from Rio Tinto as it continues to blitz the markets with announcements about what it is and isn’t doing.

This time it revealed it was considering listing its North American coal assets on the New York Stock Exchange as Cloud Peak Energy Inc.

Rio said it had filed plans with the US Securities and Exchange Commission for an initial public offering worth up to $US1 billion ($A1.1 billion).

However, Rio Tinto indicated that this was only a preliminary move and that it might not move towards full listing, or pursue a different form of divestment.

A final decision would be made “once these options have been more fully explored,” it said in the latest statement.

Rio Tinto said in November it was exploring the possible sale of some or all of its US coal assets to help pay debt used to purchase Canada’s Alcan.

“We are in active discussions with a number of prospective buyers who have expressed strong interest in those coal assets,” chief financial officer Guy Elliott said in a statement.

The SEC filing did not reveal the number of shares the company planned to sell or their expected price.

Rio said that Cloud Peak Energy comprised most of the North American coal assets of Rio Tinto Energy America, and is the second largest producer of coal in the U.S. and in the Powder River Basin, operating three of the five largest coal mines in the region.

The Powder River Basin is a major thermal coal producing region in the US. There are around 35 major mining operations spreading through parts of Montana in the West of the country.

Cloud Peak’s Powder River Basin mines in Wyoming and Montana are huge: they supply 11.5% of the US domestic market for coal, generating 6% of America’s electricity.

Cloud Peak would exclude Rio’s Colowyo coal mine in Colorado and the Sweetwater uranium assets, which Rio has already said it would sell Sweetwater.

The lead underwriter for the offering is Credit Suisse Securities (USA) LLC.

BHP Billiton shares lost four cents to $37.15 in Australia on Friday, while takeover target Rio Tinto shares added $1.00 to $116.00.

 

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Westpac shares gained more than 1% Friday after it revealed it had escaped the worst of the credit crunch and was looking for a 6%-8% rise in earnings for the full year.

It’s now the country’s second largest bank by market capitalisation after the Commonwealth, which reports its full 2008 financial year results this Wednesday.

CBA shares eased on Friday ahead of the result and investors will continue to be uncertain until they see the actual figures from the bank. Expect a solid profit rise, even after a rise in bad debts. 

The CBA is a big lender to the Centro Properties group which is now in break up mode to try and restructure to repay debts.

Westpac said in a statement on Friday that full-year cash profit, which excludes income from derivatives trading, will increase up to 8% in the year to September 30, on revenue growth of up to 9%.

That’s in stark contrast to the lower profits expected from the ANZ and the National after both announced big write-downs.

Westpac said it will maintain a conservative risk profile and is on target to complete its planned takeover of St. George Bank which updates the market tomorrow.

Westpac CEO, Gail Kelly said the bank was continuing to do well despite the slowing growth now being reported across the economy.

“Managing risk remains a priority for us and we are maintaining our strong lending and credit risk disciplines,” she said in a statement.

“We are not distracted by problems in our credit portfolio, enabling to us concentrate on our strategic agenda.”

 

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And Telecom New Zealand, the country’s biggest Telco has forecast a second year of declining profits after full year earnings dropped 16% to $NZ713 million in the year to June 30.

Profit could drop by up to 30% this year as competition intensifies from the likes of Telstra and Vodafone.

The once dominant Telco is having to build new new broadband and mobile networks and cut prices to meet the rising competition from its rivals.

Telecom shares dropped more than 10% on Friday, the largest one day fall in 11 years.

The company says 2009 earnings will fall to between NZ$500 million and NZ$540 million in the 2009 year.

The company’s dividend payments will fall to 6 NZc a share in the first three quarters of fiscal 2009, compared with 7c a year earlier. All 2009 dividends will be paid without tax credits.

Telecom plans to increase capital spending to NZ$1.1 billion this year to finance the new networks.

It won’t be as dramatic a week this week as last week was with four leading central banks meeting; our bank’s signalling a rate cut as soon as next month, and then the Europeans ruling out a rate rise sparking a major rise in the value of the US dollar, which was already on the turn.

Our dollar was pummelled, which will be a major theme here this week, along with June 30 companies reporting season hitting full speed. 

Oil prices should be watched closely to see if the fighting in Georgia and South Ossetia involving Russian troops, stops the recent fall in world prices (it had no impact Friday).

And, as usual, there will be some important statistics to worry about, including US consumer price inflation, European economic growth and here the third Statement on Monetary Policy from the RBA, which is out later today.

It will be be watched closely for more clues about how strong the Bank’s new found rate easing bias is.

The Bank will flesh out last Tuesday’s post rate decision statement from RBA Governor, Glenn Stevens.

The AMP’s chief economist, Dr Shane Oliver says “Our assessment is that the RBA is likely to indicate increasing downside risks to its growth forecasts and increased confidence that inflation will fall which will help reinforce expectations for interest rate cuts in the months ahead, albeit maybe not to the same degree as that already priced into the money markets”.

Of interest to the RBA will be this week’s wages price index and average weekly earnings figures for the June and May quarters respectively.

The consumer confidence figures from the Westpac-Melbourne Institute will be released and the latest monthly survey on business confidence from the National Australia Bank. Both should show a small gain perhaps in confidence on the back of the downturn in oil and petrol prices and last week’s talk about lowering interest rates.

The June half profit reporting season will also start to gather pace with stocks such as Cochlear, the Commonwealth Bank, Computershare, Telstra, Leighton and Stockland due to report.

The CBA, Telstra and Stockland will be the most watched: the CBA for banking and if it has missed most of the bad news, like Westpac revealed on Friday; Telstra because it has so far escaped most of the chat about poor results as it is not in finance, or resources; and Stockland which, of the major property investors, has so far been silent on what’s been happening to its business from the slump in financial engineering and geared property sectors.

The AMP expects profit growth for 2007-08 to have come in pretty weak at around +3%, down from +15% in the previous financial year.

According to Dr Oliver the economic backdrop to this reporting season is the toughest since 2000-01 as growth has slowed sharply and costs have picked up.

“All sectors, including resources which have been hit by rising costs, are likely to report soft results for 2007-08.

“However, while the results are unlikely to be the disaster the market is currently priced for after its 30% slump from last year’s high, the focus is likely to be on the outlook statements from companies and these are likely to be disappointing.

“While market expectations for 60% growth from resources in 2008-09 are reasonable given the latest surge in coal and iron ore prices, consensus expectations for 5 to 10% growth in the rest of the market are likely way too strong and will be revised down.

“The Commonwealth Bank’s result will likely be a key focus given the increase in debt provisioning at NAB and ANZ recently.”

In the US, data for the trade balance, retail sales, consumer prices, consumer sentiment, industrial production and a couple of business surveys are due for release.

The retail sales figures will be watched closely to see if the spate of disappointing reports last week from leading chains on July growth reflects the entire retailing sector’s performance for the month.

Wal-Mart’s latest quarterly earnings and more retailed commentary also leads off a string of financial reports from the sector, which will help reinforce the message from the retail sales numbers.

US consumer prices rose 5% (annual rate) in June. Any advance on that will get markets a bit anxious, even though the Fed ruled out a rate rise (while warning of the risks from higher inflation).

It also ruled out a rate cut to further soften the downside risks to growth, which in the minds of many analysts, remains the bigger of the two dangers to the US.

Reuters and Bloomberg polls top a US CPI headline rate of 0.4% for July, compared with June’s 1.1% for June alone.

The CPI is out Thursday night in the US, our time. Tuesday sees the US trade deficit for June, Wednesday retail sales and import prices and business inventories (for June) and on Friday consumer confidence and industrial production.

 
MONDAY:

The Reserve Bank releases its third Monetary Policy Statement of the year at 11.30 am; The Australian Bureau of Statistics (ABS) releases Lending Finance figures for June. Final profits from United Group, Crane Group, Bendigo Bank; Dexion interim; Housing Industry Association (HIA) June quarter national and state outlook

 
TUESDAY:

Final profits from Bradken, Cochlear and Worleyparsons; interims from APN News and Media and Australian Agricultural Co; National Australia Bank monthly business conditions survey; St George Bank briefing; Singapore Telecom/Optus first quarter results.

 
WEDNESDAY:

The ABS releases the Labour Price Index for the June quarter; final results from Telstra, the Commonwealth Bank, Fletcher Building, Computershare, Specialty Fashion group, Talent2, Boom Logistics and Pharmaxis; Westpac/Melbourne Institute consumer sentiment survey.

 
THURSDAY:

The ABS releases Average Weekly Earnings figures for the May quarter; final results from Leighton, ASX, Stockland, PMP, Futuris and Reverse Corp; David Jones full year sales figures.

 
FRIDAY:

Final results from Biota, IDT Australia and SAI Global; Babcock and Brown Japan Property Trust annual results; June quarter housing affordability report from the HIA and Commonwealth Bank.

 Problem with Bank

Boom. The second of the four pillars went down yesterday.

When the dust settled at the end of trade, 11% of ANZ’s (ASX:ANZ) share price was missing. Its weakness was the same one that crushed 15% of National Australia Bank on Friday. The falling and uncertain value of CDOs.

Collateralised Debt Obligations are pot-luck assets. Investment banks basically take a bunch of different ingredients – high-risk mortgages and low-risk mortgages, for example – and stir them together into one product. Then they sell these off to whoever wants them.

The CDO units with mortgage assets encased inside them are crumbling. Any businesses built with CDO bricks are crumbling now too. But because they’re a mish-mosh of assets, no-one really knows how much their CDOs are worth.

So far, we know that other Aussie banks have CDOs built into them somewhere too. You’d probably like to know how many CDO bricks there are. The banks are keeping their mouths shut on that one.

Westpac (ASX:WBC) has said it hasn’t suffered any losses on its CDO portfolio. It owns a “small, high quality CDO portfolio”. Commonwealth has said it has no unhedged CDOs or CLOs (Collateralised Loan Obligations), but a “small portfolio” that is “fully hedged”.

Seeing as none of the banks plan to divulge exactly how much CDO or CLO exposure they have…the nearest thing the market has to go on is total derivative exposure. So here it is. These are the figures from the banks most recent balance sheets. Most of them reported in March.

NAB and ANZ have probably built the most bricks into their businesses. St George probably has the least. But all the banks have fallen in double figures since Thursday’s close, before the funeral procession began.

Ordinarily, we might look at this as a trade. Commonwealth, for example, has about half the derivative exposure as ANZ. Plus it has hedged those assets. But it’s still down 11%.

The problem with this CDO mess is that analysts and financiers are having trouble valuing the assets. Plus they can, and probably will, fall further. NAB boss John Stewart noted on Friday that America has about as many spare homes as Australia has people.

If there’s still more bad news to come, we don’t see any compelling reason to look at the banks yet. The market seems to agree. The big banks are down another 2-5% again today.

Wall Street Sends All Ords Lower

But that probably has a lot to do with Wall Street’s performance last night. The Dow Jones fell 2% after regulators closed two small regional banks. The smallest ones are the first to go.

Expect more of this. It may seem like financials will never heal. They will eventually. We don’t know what the industry will look like then. Probably a lot more conservative…until the next big fad loads up balance sheets with debt until it all climaxes in another bubble.

Meanwhile, iron ore and coal stocks are still in high demand…