BOE holds firm on interest rates

As was widely expected, the Bank of England announced yesterday that they will be holding interest rates at 0.5% for the time being. To provide some much needed breathing space for the UK economy, BOE also announced that they will be injecting an additional £50billion to purchase government and corporate bonds, making for a total of £125billion.

The Royal Bank of Scotland (RBS) fared a lot less well than their main street banking rivals, Barclays on the announcement that they had made a loss of £44million for the first quarter of 2009. That means more than a half billion pound reversal of fortune from the same period last year. Too make things abundantly clear that all is far from healthy at RBS, the 70% taxpayer owned bank also took the opportunity to announce bad debt write-offs of £2.9bn for the same quarter.

It has become a matter of common knowledge that UK businesses are being charged considerably more for credit than their counterparts and rivals in Europe, particularly France and Germany. There is increased optimism within continental Europe that the economic turnaround as happening at a much quicker pace that within the British Isles, and financial analysts are saying that the cost of bank credit is playing its part. Even more worrying for UK companies is that, according to a recent survey held amongst UK, French and German companies, this trend is expected to continue throughout 2009.

On the FTSE yesterday, all eyes were on Vodafone, the world’s largest mobile telecoms group, where fears of report of reduced revenue and profits was expected to be announced. Their shares are expected to take a massive tumble on the announcement that routing call fees should be reduced by up 70 per cent. On the day Vodafone shares fell 4.9 per cent to (6 pence to 121)

Despite an impressive first quarter, shares in Barclays Bank had a bad day yesterday, with shares falling 4.3 percent (11 pence to 276) after the bank announced fears of bad debt in 2009 from their commercial client portfolio
Lloyds Bank also dropped by 14 percent (13 pence to 97) as the U.K.’s largest mortgage lender also confessed that heir corporate bad loans were rising significantly.

Food giant Unilever added 9.8 percent to their share value (140 pence to 1,443) on the back of increased first quarter sales growth

Life insurance companies continued their recent revival, with Prudential up 3.7 per cent (18 pence to 441) and Aviva up a mere 0.7 per cent to (3 pence to 341).
Star of the sector were undoubtedly Legal & General, who showed an increase of 9.9 percent (7 pence to 72). L&Gs shares have tripled in value within the last three months.

The FTSE 100 started the day strongly and at one stage of the day’s trading found them above the 4,500 mark for the first time this year. However as the day progressed, shares took a backward turn and the index finished the day on 4,398.68, up just 2.9 points. The FTSE 250 closed the day on 7840.93, down 29.27 points
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On the money markets, on the announcement of increase UK treasury subsidies, the pound fell 0.37 cents against the US dollar to $1.5052 and 0.67 cents against the euro to 1.13 Euros.

Pound/US dollar 1.5052

Pound/Euro 1.13

Pound/Japanese Yen 149.42

Pound/Swiss Franc 1.6986

Wall Street shares had a poor day on trading, probably as a result of the less than encouraging stress tests on the US banks
The Dow Jones Average dropped 102.43, to close at 8409.85. Nasdaq fell 42.86 points to close at 1716.24

The news that of 19 of the US’s leading banks, ten of them can be regarded as undercapitalized sparked of a major crisis of confidence in the American financial community. The banks will need a combined $74.6billion (£50billion) of extra funding to restock their cash reserves in the event of another global financial downturn.
Bank of America was discovered to be the most vulnerable, requiring an additional $33.9billion, which has to be raised in the private market.

North America’s largest carmaker General Motors, are next to fall into the unwelcome spotlight of possible bankruptcy. Their $6billion first-quarter net loss and chronic cash flow problems mean that the day of reckoning for GM is drawing rapidly closer.

In Europe, the central banks followed the UK when the announced some ambitious plans in a move to boost growth through cutting interest rates to previously unheard of level of one percent.

The European Central Bank also intimated their intention to take up the option on €60billion of covered bonds, backed by mortgage or public sector loans.

Crude oil prices made a recovery yesterday, hitting their highest level for six months, climbing to more than $57 a barrel. Gold dropped to $913.40 an ounce and copper also feel to $216.00

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Tags: Bank, Bank of England, Banking, British Economy, Credit Crunch, Financial News, Interest Rates, Money Management, UK Banks