Investors wary of Wall St’s latest rebound

Investors wary of Wall St’s latest rebound

Any Asian rally today likely to be short-lived with sentiment still fragile amid tensions

By Goh Eng Yeow, Markets Correspondent

Mr Geithner faces a massive task if he is named the next Treasury chief.

THE manner in which Wall Street greeted central banker Timothy Geithner’s likely appointment as the next United States Treasury Secretary smacked of desperation.
After enduring a wild roller-coaster ride last Friday, the Dow Jones Industrial Average staged a last-hour surge to close 494.13 points, or 6.5 per cent higher, following reports of his appointment.

This has raised hopes among traders that regional markets will enjoy an obligatory knee-jerk rise today and give them another opportunity to get rid of their stocks at a higher price.

Mr Geithner comes with impressive credentials. As the president of the Federal Reserve Bank of New York, he has been at the front line waging war against a banking crisis that threatens the world with financial armageddon.

Even so, few traders expect the stock market rally to have legs. Wall Street might simply be pinning too much hopes on Mr Geithner, even though he may be the best-placed person in the world to tackle the crisis, given his first-hand experience.

There will be a torrent of economic reports to keep them on their toes, such as US home sales data and consumer confidence figures.

On top of everyone’s mind will be the big issue confronting Mr Geithner even before he takes up his new appointment in Washington - the urgent need to restore confidence to embattled banking giant Citigroup as it faces a serious run on its share price.

Last Friday, Wall Street’s late rally failed to give the bank a boost, as it ended 20 per cent down at US$3.77 and brought its total loss for the week to 60 per cent.

Citigroup’s problems started on Monday, after it announced massive layoffs of 52,000 people to trim its global workforce to 300,000.

In normal times, this move would have been greeted as a positive sign that the bank was getting its act together and shoring up its bottom line.

But these are abnormal times after the ugly precedents left behind by other failed US financial behemoths such as Lehman Brothers and American International Group.

Faced with a collapse in Citigroup’s share price, investors would rather not take any chances and vote with their feet as they ignored analysts’ advice that the bank was viable.

But Citigroup is not the only company to suffer a backlash from cutting its headcount.

Since DBS Group announced on Nov 7 that it was cutting 900 jobs - mainly in Singapore and Hong Kong - its share price has slumped 13.5 per cent. Over the same period, United Overseas Bank (UOB) has dropped a smaller 12.6 per cent, while OCBC Bank is down 10.2 per cent.

Similarly, Neptune Orient Lines fell 3.9 per cent last Wednesday, after it said it was cutting 1,000 jobs globally.

Observers noted that this shows that while management might consider job cuts as a prudent move to strengthen the balance sheet, investors were treating it as a sign of panic.

To calm investors’ jitters, it is important for company bosses to keep cool and maintain the veneer that it is business as usual, no matter how tough things become.

While it may be necessary to trim unnecessary jobs, it would be wise to execute such moves quietly and not to trumpet them around the world.

This may send the company’s investors into panic and even attract financial barracudas like hedge funds to attack the company’s share price.

For companies which have maintained a ’silence is golden’ approach, the strategy seems to pay off handsomely.

Consider UOB, which has kept a low profile since the global credit crisis exploded in August last year.

Since January, its share price has fallen 41 per cent. This is smaller than the 51 per cent year-to-date drop in the benchmark Straits Times Index, which lost 97.04 points last week to 1,662.1.

Source : Straits Times - 24 Nov 2008

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