The IMF believes the financial crisis is entering a dangerous new phase, with massive government budget deficits making it impossible for banks and companies to raise money.

This will particularly affect countries such as Australia that depend on international capital markets to finance the banking system.

The fund’s review of world financial stability released last night said nations relying on wholesale financial markets risked “more rapid, disorderly deleveraging” in which bank lending could be abruptly slashed.

The IMF believes the downturn will last for years, saying the weakness of lending in the US and Europe resembled that in Japan, where there was no growth for a decade.

The IMF believes the financial crisis will result in bad debts of $US4.1 trillion, ($5.7 trillion), of which $US2.8 trillion would hit the banks.

Only one-third of those losses have so far been recognised. In a damning assessment of the solvency of the world banking system, the IMF says:

“If banks were to bring forward to today loss provisions for the next two years before expected earnings, the

US and European banks in aggregate would have tangible equity close to zero.”

The IMF estimates the banks will have to raise at least $US875 billion in additional capital, and possibly as much as $US1.7 billion, if they are to resume lending.

However, raising funds is becoming increasingly difficult, despite some recent improvement in interbank markets.

article excerpts news.com.au

The focus has now switched back to the original disclosures†and bad debt†likely to rise to $2.5 billion next year.

Having set aside about $1 billion at the end of its 2008 full year at June 30, Commbank yesterday provided further detail to the market that an additional $1.5 billion would almost certainly be needed to make up for loans that have gone sour over the past six months.

Details of the higher bad debt charge have led analysts to downgrade the bank’s forthcoming earnings after what ABN Amro said was an effective profit warning.

JP Morgan also overturned its day-old “buy” recommendation on Commbank’s shares, saying investors should sell based on its forecasts that the group’s earnings next year could fall by nearly a fifth and its annual dividend cut by 17 per cent.

This story indicates that the economy is struggling with all banks revising their bad debt provisions.

Liquidation Direct is at the coalfront in this respect, discussing and advising struggling businesses and individuals on a daily basis.

If you are suffering financial difficulties, call 1300 767 525 for free insolvency advice – 24 hours – 7 days.

article excerpts SMH

When a business has trouble meeting obligations, it is the squeaky door that gets the oil.

Make sure your door is squeaking loudly.

Also make sure your approach is professional rather than emotional. If customers know you are serious and you take the appropriate steps throughout the process in a disciplined manner, it is less likely to end in an unpleasant way.

Indeed, accounts receivable should be the prime source of funding for a business; otherwise, you are funding your customers’ businesses.

Businesses often find it difficult to chase customers for payment for fear of upsetting them.

If you are not being paid promptly the customer is probably not worth having anyway, so why worry about offending them?

If the debtors’ ledger shows that the 90 and 60-day columns are increasing, management needs to take steps to correct the position and prevent bad debts.

The following 12 steps should be taken in order to stop the number of out of order debtors skyrocketing:

ï Have†a system and process in place and stick to the process;

ï Follow†up on slow payers;

ï Get†difficult debtors to admit they have problems in paying and get a commitment for an amount to be paid against the account;

ï Go and see them – and don’t leave the premises without having their commitment;

ï The same applies if following up by telephone. Don’t finish the call without obtaining a firm commitment and follow up immediately if it is not paid;

ï Encourage†payments to be made to your bank account;

ï Automatically†send 30, 60, and 90-day reminder letters;

ï Send†professional demand letters and threaten legal action;

ï Have†persons responsible for the transaction deal directly with decisionmakers and keep regular contact;

ï When†possible, insist that the account be paid when work is delivered and/or obtain written terms of the trade;

ï Discuss†amounts up front so customers know you are serious about collection; and

ï If†necessary, use a debt collector and be prepared to go to court.

At Liquidation Direct, we see that one of the major causes of company failure is due to an inability to collect debtors and manage cash flow.

It is imperative that debtors be collected on time and that the extent to which credit is extended to customers is limited and closely monitored.

If you are sufffering financial issues, you can call Liquidation Direct for free, confidential insolvency advice 24 hours on 1300 767 525.

article excerpts news.com

The bank, which recently bought local rival BankWest from stressed UK bank HBOS , issued the warning saying that bad-debt charges would make a major dent on its half-year performance to end-December.

It blamed just three failed companies -† Lehman Brothers and two local firms – for much of the forecast increase in bad-debt provisions.

”………..the group’s exposure to Lehman Brothers, Allco Finance Group and ABC Learning Centres will result in significantly higher first half provisions,” the bank said.

Commonwealth†has $240 million in senior debt exposure to collapsed child-care group ABC Learning Centres and a $170 million exposure to collapsed investment firm Allco.

Australian banks are battling tough global credit markets, a slowing domestic economy and risk of rising defaults among Australian corporate borrowers.

Industry analysts expect Australian banks’ bad debt provisions to rise in the months ahead, and expect a number of the banks would have to raise capital. The country’s biggest lender, National Australia Bank , raised $3 billion in a fully underwritten share issue this week.

The bank raised $2 billion in an institutional share placement last month to help fund its $2.1 billion acquisition of British bank HBOS’s Australian unit BankWest

Joe Powell, managing director of SEEK Employment said it wasn’t surprising to see the turbulence in global financial markets spill over into the labour market.

“Employers and jobseekers alike are understandably nervous given the current environment. Until we see some stability in global financial markets this nervousness is likely to continue and may have a negative impact on the historically low unemployment levels.”

The SEEK employment index, which measures the ratio of online job ads to applications received, fell last month in every state and territory except NT.

Threat to economy

The Australian reported the latest Australian Chamber of Commerce and Industry survey of investor confidence showed business conditions continued to deteriorate in the September quarter, despite an interest rate cut.

ACCI director of industry policy and economics Greg Evans said slowing investment, sales and profit meant employment was expected to drop.

“This survey shows that recent global financial turmoil and slowdown in global economic outlook is posing a threat to the Australian economy,” he said.

Employees have good reason to fear the recent turmoil in the global markets. As business starts to feel the squeeze, staff will be laid off and this may, in big enough numbers, cause further damage to the economy – with less people working, there is more pressure on the system and less money being spent in the system. And worse still, people who may lose their jobs may have high levels of debt – this will lead to higher levels of bankruptcies, bad debts for banks and financiers and more distressed assets sales.

Liquidation Direct offers free assistance to persons and companies suffering financial difficulties. The insolvency advice line is available 24 hours on 1300 767 525. The advice line is staffed by an Official liquidator and expert in insolvency.

news.com.au article excerpts and comments

Aberdeen Asset Management senior equities manager Bruce Stout believes the $500 billion global write-downs already announced and related to sub-prime debt are just the start.

“There’s probably the potential for a lot more bad news to come from the banks in Australia,” Mr Stout said. “I would have to be very sceptical of the dividend yields of the banks when there are capital constraints in place.

“The banks have shown in the past that dividend yields are the first to go.”

The bad news among the banks has been concentrated in the US, with $260 billion worth of write-downs emanating from the major institutions on top of $220 billion worth from Britain.

Mr Stout said although the Australian exposure to the global fallout had been minimal, but with NAB’s $1 billion exposure to collateralised debt obligations, the potential for further write-downs still existed.

ANZ has earmarked $1 billion to cover potential bad debts over the next year, but most of its damage has been related to Opes Prime and growing corporate defaults.

The yields on Australian banks are considered among the strongest in the world, despite the recent share price underperformance.

In light of the bad-debt woes, ANZ has an 8.68 per cent yield, ahead of NAB at 8.15 per cent, CBA at 6.4 per cent and Westpac at 6.27 per cent.

The world’s biggest banks associated with the $500 billion write-downs have been able to raise $350 billion in capital.

The fallout from the credit crunch and associated liquidity withdrawal, Mr Stout said, still had years to run.

“Our (UK) banks have had to cut dividends, and rights issues have not been taken up,” he said. “Anyone who thinks the credit crunch is over is kidding themselves. We believe there’s a long way to go in terms of write-downs in the UK and the US. As long as it runs, I think you can expect some more negative news.”

Mr Stout said that based on historical global credit events, consumers would be caught up in the ramifications of lower lending levels and business confidence. “Now that the credit crunch is under way, the next phase that we expect is that there will be a contraction among consumers. It doesn’t matter where monetary policy goes, if banks can’t lend, then we will see their balance sheets get hit by a double whammy.”

Aberdeen’s asset management business is focused mostly on Britain.

ìThere is still a significant amount of cdo (collateralised debt obligation) instruments out there that are still to be brought to account,î Mr Norris told ABC Television.

ìMany estimates are that there’s possibly another half trillion dollars of that to come to account.

ìWe are not really going to see a significant level of† confidence build up in markets until we get through probably a† couple of quarters of non-surprises.î

CBA reported a full-year net profit gain of seven per cent to $4.791 billion on Wednesday and increased cash earnings, the bank’s preferred measure of profitability, by 4.6 per cent to $4.733 billion.

Rampant earnings growth in previous years was curbed by $930 million worth of bad debts and higher interbank borrowing costs, which blew a $279 million hole in the bank’s bottom line, despite† its own unpopular rate rises.

ìIf you look at the performance over the year, it’s been a pretty solid one,î Mr Norris said.

ìGlobal funding has been a real issue, so there’s been quite a significant increase in funding costs.î

Mr Norris said the bank’s funding book had increased in size by about 15 per cent, yet income on that book fell by five per cent.

The bank recovered an average 16 bases points less on its mortgages than previous years, as the local 90-day bank bill rate increased on Reserve Bank of Australia rate rises and off-shore funding costs surged, he said.

We’re ìlooking forward to the interest rate cuts that are forecast for next month,î Mr Norris said.

CBA was putting in place another 212 million dollars of provisioning for mortgages to take account of what could be a more stressed economic environment in the next 12 months, Mr Norris said.

The bank had lowered the provisions for mortgage arrears after the consumer book performed better in the 12 months to June than the same period the previous year, he said.

ìThose banks that have taken a more cautious or a more prudent approach in their lending are seeing the benefits of that,î Mr Norris said.

Mr Norris said CBA had decided not to proceed with the acquisition of ABN Amro Australia for several reasons, including the current market environment and the funding CBA would have to provide to run the business.

ìThe business is a good business but it does have a number of complex parts,î Mr Norris said.

ìWhen you look the funding requirements … there’s a significant capital injection that would have to be made in order to appropriately capitalise the entity.î

Mr Norris said CBA had been under no obligation to, nor had it indicated that it would, proceed with the acquisition.

CBA shares closed last week at $43.70, having fallen 26 per cent this year.