Colin Lea's  Instablog

From the Sydney Morning Herald's Eric Johnston:

THE combined annual cash profit of Australia's four big banks is set to pass $25 billion, with earnings helped by widening profit margins and a fall away in bad debts.

Westpac is on Monday scheduled to round off the big bank reporting season, with the nation's second-biggest lender tipped to deliver a profit of $6.46 billion.

This would be up slightly from last year's $6.30 billion.

This is behind Commonwealth Bank's bumper $7.11 billion profit and ANZ's $6.01 billion.

National Australia Bank was the only major bank to see profit go backwards, following problems at its UK banks, with earnings down 0.5 per cent to $5.43 billion.

Read more: http://www.smh.com.au/business/big-four-to-pass-25b-in-profit-20121104-28s36.html#ixzz2BJIS7eub

From the Sydney Morning Herald's Michael West:

The Federal Court's Justice Jayne Jagot has accepted the evidence from 12 NSW councils - who claimed they had been duped into buying a toxic financial product - that the ratings agency Standard & Poor's was little more than a lap dog for slick merchant bankers.

Investors are entitled to and indeed do rely on credit ratings and can expect them to be based on reasonable grounds.

The ruling means the councils will recover about $30 million in losses following failed investments in complex synthetic derivatives known as constant proportion debt obligations, or CPDOs, that were arranged by ABN Amro, rated AAA by S&P and sold by LGFS in 2006.

Read more: http://www.smh.com.au/business/rembrandt-ruling-puts-heat-on-sp-20121105-28t4y.html#ixzz2BJH40WgQ

From this morning's Sydney Morning Herald:

Traders suspect that the share prices of a number of major ASX200 stocks - including ANZ Bank - were manipulated when trade opened this morning.

Mystery trades in ANZ pushed the share price of ANZ up $1.67, or 6.5 per cent, when trading began at 10am.

ANZ, which closed at $25.79 yesterday, soared to $27.63 per share on the opening bell, before the stock collapsed to $26.16.

In the first few minutes of trading about a third of the average daily number shares in ANZ changed hands. Large fluctuations hit the share prices of Ansell, Aristocrat and AGL, while Commonwealth Bank and Bank of Queensland also spiked when the ASX opened.

"I've had five of my brokers contact the ASX and they are clueless as to what has gone on," said one of Australia's leading stockbrokers.

"They are saying the trades fall within a reasonable range, but if a broker pushed a stock up five per cent we'd cop a $25,000 fine. Right now, I'd say this is in the 'too hard' basket for market control at the ASX."

Watchdogs alerted

A spokesman for the body in charge of monitoring real-time trading - the Australian Securities Investment Commission - said it was ''aware of a surge in ANZ share prices and was looking into the matter.''

''This is not a formal investigation,'' he said.

ASX spokesman Matthew Gibbs said the price jumps were a result of buying orders, and nothing to do with the trading system itself.

''There were a number of large buying orders at the market's open, and the price of a number of stocks went up,'' he said.

''Most of them appear to have come down now and are trading at a normal price band. Naturally ASX is monitoring the situation.''

Mr Gibbs said the ASX was so far aware of a price jump in AMP, ANZ, AGL, Aristocrat and Brambles stocks.

''It's certainly nothing to do with trading system,'' he said.

Options affected

The trades were large enough to affect the price of options traded on the S&P/ASX 200 Index - commonly referred to in the investment world as XJO Index Options. The index tracks shares that form the S&P/ASX 200. The XJO Index rose to 4606 on the back of the moves, before settling back to 4575.

A number of brokers noted that those options expire at the close of trade today. The settlement price for those options will be calculated using today's 4606 opening price of the XJO index.

"I hope ASIC and the ASX investigate the ANZ open at $27.63 this morning," posted one reader on the BusinessDay markets blog. "It might just be a coincidence that index options expire today."

Brokers have called for the trades to be investigated immediately because they caused volatility on markets and could cause substantial losses.

"Someone has made big money on the Index trades this morning," said one major broker.

"Either that or an algorithm has gone haywire, a mistake has been made, or these trades are deliberate.' Either way, do we have an orderly market?"

Brokers have complained that the shift in responsibility for control of the market from the ASX to ASIC meant that nothing was done when trades of this nature caused alarm bells to ring.

"We rang the ASX, they said 'Ring ASIC'. We rang ASIC, they said 'Ring the ASX'," said one Melbourne-based broker.

With Georgia Wilkins

Read more: http://www.smh.com.au/business/mystery-trades-hit-anz-cba-stocks-20121018-27ssj.html#ixzz29eWYG9gA

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.