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Westpac reveals exposure to tottering WorldCom

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    Westpac reveals exposure to tottering WorldCom
    By Sharon Kemp
    June 27 2002

    WorldCom's admission of accounting irregularities reverberated in Australia's financial services market yesterday, with at least one local major bank declaring a material exposure to the teetering United States telecommunications giant.

    Westpac disclosed to the Australian Stock Exchange that it was owed $US25 million ($A43 million) by WorldCom as part of a syndicated loan.

    Separately, the Kerry Packer-backed financial services group Challenger International has delayed a planned $511 million issue of five-year bonds backed by mortgages over 27 Sydney commercial properties.

    Challenger was forced to postpone the issue for two weeks because WorldCom subsidiary UUNet is a tenant in one of the properties, the Forum East property in St Leonards.

    Challenger said in a statement yesterday that credit ratings agency Standard & Poor's had confirmed that even in the event of WorldCom's default, the issue structure would be secure.

    "However, in the interests of market transparency, it has been deferred to enable investors to fully digest any implications resulting from the latest WorldCom announcement," Challenger said in the statement.

    Coincidentally, Westpac is the lead manager of the Challenger issue.

    But the bank's direct link to WorldCom is through a loan to the US parent group, which Westpac said was in line with its strategy of focusing on markets in Australia, New Zealand and the Asia-Pacific region.

    WorldCom wholly owns Internet service provider OzEmail and has a 10 per cent interest in Southern Cross Cable.

    Westpac said it would increase provisioning to cover the debt if it became categorised as non-accrual. A banking analyst said the exposure was minor and had been factored into forecasts of bad debts.

    Westpac shares dropped nine cents to $16.21. Challenger shares suffered a nine-cent, or 3.2 per cent, fall to $2.69.

    Australia's three other major banks are believed to have no exposure to WorldCom.

    "We do not comment on customer issues. But if we had anything at all to disclose, we would have already done it," said an ANZ spokesman.

    Commonwealth Bank media manager Paul Ray said the bank refused to comment on relationships with its customers.

    CBA's share price drop of 65 cents, or 1.9 per cent, to $32.91 was due to a Deutsche Bank report that downgraded the bank's 2001-02 earnings by 2.5 per cent to account for weak investment earnings
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