July 31, 2021

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Gambling stocks surge on Crown takeover talks while insurers take a hit due to floods

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The Australian share market has risen, with Crown shares surging on a takeover offer and leading other gambling stocks higher.

The ASX 200 closed up 0.7 per cent, or 44 points, at 6,752 points.

After struggling for direction in early trade, most sectors of the local market gained ground, with the exception of mining stocks.

The Australian dollar was weaker, buying around 77.25 US cents at 4:30pm (AEDT).

Crown shares leapt 21.4 per cent to $11.97 after the casino operator received an $8 billion takeover offer from US private equity giant Blackstone.

Today’s surge pushed the stock above the offer price of $11.85 per share.

The news sent shares in rival casino operator The Star Entertainment Group up 3.9 per cent, while Tabcorp (+2.4pc) and Aristocrat (+1.5pc) also gained ground.

The major bank stocks ended higher, including the Commonwealth Bank (+0.4pc) and ANZ (+0.5pc).

In separate announcements, CBA and ANZ said they had agreed to settle a 2016 class action filed in the US for alleged benchmark interest rate rigging.

The suit had been filed by US-based investment funds and an individual derivatives trader against 17 global banks.

The two Australian banks said they did not admit liability as part of their settlements, adding that the terms of the settlements were confidential but would not have a material impact.

Telstra shares gained 1.3 per cent to $3.25, after it provided more details of its plan to restructure the business.

The telco will be split into four divisions and shareholders will own stock in a new holding company under the same name.

Telstra’s physical infrastructure, such as its fibre, data centres and exchanges, will operate under a new InfraCo fixed unit, while InfraCo Towers will include its mobile towers.

The customer-facing unit will become ServeCo and the international business will be a separate unit.

Telstra expects the restructure to be complete by December.

Insurers brace for flood claims

Insurance stocks fell sharply as heavy rains cause flooding and property damage, with severe weather warnings in place for most of New South Wales.

Shares in IAG (-2.3pc), Suncorp (-2.1pc) and QBE (-3pc) all ended lower.

The Insurance Council of Australia declared a catastrophe for large parts of the state, to “escalate and prioritise the insurance industry’s response for affected policyholders.”

“It’s too early to understand the extent of the damage to property in affected areas and to estimate the insurance damage bill, however insurers have received over 5,000 claims in the past few days,” the Council’s CEO Andrew Hall said.

IAG said more than 2,100 claims had been lodged with the company by late Sunday, covering mainly property damage.

Analysts at S&P Global said while losses for individual insurers would vary, they would be manageable.

“We believe that Australia’s [property and casualty] insurers are well-placed to assess and meet claims that arise, with reinsurance protection shielding the larger insurers from outsized losses,” the ratings agency said.

Bank stocks drag on Wall Street

The moves on the local market follow a mixed finish for Wall Street on Friday.

The Nasdaq ended higher, lifted by Facebook and energy shares, while the Dow Jones Industrial Average lost 0.7 per cent and the S&P 500 ended slightly lower.

The S&P 500 banks index dropped after the US Federal Reserve said it would not extend a temporary capital buffer relief put in place to ease a pandemic-driven stress in the funding market.

“Banks have had such a significant up move this year and this news has only acted as a catalyst for profit taking,” National Securities chief market strategist Art Hogan told Reuters.

The measure, called the supplementary leverage ratio exemption, had been put in place during the pandemic, to ease stress on the funding market.

“The exemption effectively meant that banks could exclude [US Treasury bonds] UST and central bank deposits when measuring the size of their balance sheets used to estimate the minimum level of capital they are required to hold,” NAB strategist Rodrigo Catril wrote in a note.

Mr Catril said the lapsing of the exemption takes away an incentive for banks to hold US Treasuries, “so the concern is that the decision will exacerbate the current elevated level of volatility” in the bond market.

ABC/Reuters

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