KEY POINTS:
The ANZ trading update is a worry.
It feels like the twin beasts of the US credit crunch and the local commercial property meltdown are eating their way up the food chain.
Last Tuesday it was big news when a CitiGroup analyst put out a gloomy report on the Australian banks - picking all of them to see a drop in profits over the next two years.
He tipped ANZ as the worst of them with a 7 per cent fall in earning per share in 2008. This morning ANZ has said its cash earnings per share will fall 20 to 25 per cent in 2008. Wow.
The update follows Friday's announcement by BNZ parent company NAB. It spooked the market when it announced it had been forced to put aside $1 billion just to cover possible losses related to US sub-prime related losses. None of this is good for the sentiment of the wider investment community.
Amongst the heavyweights gathered for the US NZ Business Council's Condoleezza Rice reception this weekend it seemed like their were only two topics of conversation - Hanover and how far the same sort of credit problems would now impact on the big Aussie banks.
Well okay, Winston was the big topic. But the credit crunch was the one that really matters.
Certainly there are some senior heads now expressing concern that what we are seeing is worse than 1987. Where as that was an earthquake that left behind a shattered market to be rebuilt, this is more of a slow surging tidal wave. It just keeps coming and it is not clear yet just how far this tide will rise.
The situation is not yet so serious that retail investors should concerned about their savings. So far this isn't Northern Rock or Bear Stearns.
But from the point of view of anyone who needs to borrow money the situation is getting dire. The collapse of the finance sector has already removed most of the second and third tier lenders from the market. If the banks are forced to pull up the shutters then we could see the local economy stall badly.
The likes of ANZ and NAB are keen to suggest that they are being cautious. Declaring the worst case scenarios now to avoid shocks later down the track.
Lets hope that's the case. However there are few pundits picking we've seen the worst of the local property slump yet.
The banks have made a fortune lending into the New Zealand property boom. Now like plenty of other investors they are up to their necks in it as equity values start to fall.
You'd hope New Zealand's economic woes wouldn't be serious or relatively big enough to swing things but as this banking story grows across the Tasman expect to see more Australian media focus going on this country's own peculiar credit meltdown.
On the Hanover front the chatter of the Auckland business community has people placing their bets on whether London-based Eric Watson will come to the party and stump up some serious cash to back up his business partner Mark Hotchin.
Watson has been predictably absent in terms of providing Hanover investors with any assurance that they'll be looked after. There are some who predict he's unlikely to turn up back in New Zealand any time soon.
Maybe if the Warriors keep winning we'll see him back in Auckland sooner rather than later. At which point he is welcome to drop for a chat about the security of that $554 million.
Liam Dann, NZ Herald Business Editor
