Darling gives Lloyds the nod to test the water

October 29th, 2009 by tom | Filed under Central banks, Daily News, Employment, Energy Prices, Exchage Rate, Loans, Money Management, Mortgages, Recession, Retail, Saving, Stocks and shares, The Markets, UK Bank Accounts, UK Banks, UK Small Business, UK employment, World Banks.

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Chancellor of the Exchequer Alistair Darling now appears likely to give Lloyds the go ahead to test the seriousness of its ambitious £25 billion refinancing plan. Darling’s tacit agreement will be looked upon by city watchers as a definite indication that the chancellor could be prepared to release the bank from its obligations to the government’s toxic asset insurance scheme. It would appear that Darling has concluded that Lloyds’ plan to bring in more private capital is in the public interest. However it would appear that his final decision will only be positive when he is convinced that the market is ready for such a bold initiative. Darling is expected to announce his decision to the Lloyds at the early part of next week. The move will mean that the bank can then begin to appoint underwriters and test the market. Only then will Darling make the final decision and may even withdraw approval for the plan if he concludes the move carries to many risks for the already under siege UK taxpayer.

As expected, the European Union (EU) has approved plans for nationalized bank Northern Rock to be split into two parts, a move that is expected to pave the way for a partial sale of the bank.

One half of the bank, known as the "good" bank, would trade as retail bank holding deposits including some of the Rock’s existing mortgages, as well as lending money to consumers only.

The toxic side of the bank will remain in government hands, whose unenviable task it would be to attempt to salvage as much as the taxpayer’s money tied up there. The chancellor has ruled out the possibility of completing the sale of Northern Rock before the general election, in spite of winning approval from Brussels.

Meanwhile Spanish banking giants Santander continue to clean up on the UK high street. The bank announced that profits during the first nine months of the year for its UK banks have risen by more than a third.

Abbey, Alliance & Leicester and Bradford & Bingley banks, owned by Santander announced a £1.2 billion profit, up 38% from the same period in 2008.

Debt laden bus and rail operator National Express has wound up their discussions with rival Stagecoach regarding a possible merger. Instead they will press ahead with their plans to mount a rights issue to re-finance the company. Yesterday’s announcement follows weeks of speculation over a possible tie-up between the groups that would have created a transport giant with an estimated worth of £1.7 billion.

Oil and gas supply group BG, announced on Wednesday that their post-tax profits for the third quarter had fallen 39 per cent to £474 million from last year’s £777 million. A spokesman for the company said that the fall in gas and oil prices had been partially offset by advance sales of liquefied natural gas at advantageous prices. Although natural gas has rallied since early September, it had not done as well as crude oil during continued signs of economic recovery.

Sterling continued to rise in value yesterday against the dollar, while rising slightly against the Euro.

Pound/US dollar 1.6393
Pound/Euro 1.1131
Pound/Japanese Yen 148.0908
Pound/Swiss Franc 1.6804

London’s FTSE 100 dropped 2.32% or 120.55 points to close on 5080.42. The FTSE 250 plummeted a further 3.19% percent yesterday, down 291.78 points to close on 8849.50

For the first time in half a year, sales of new homes in the US fell as buyers opted for bargains on existing and foreclosed houses. Unexpectedly new home sales fell by 3.6 per cent from August to September, defying economists’ expectations that they would increase. Compared with a year ago, sales of new homes were down by 7.8 per cent, according to commerce department figures

On Wall Street, the Dow Jones Industrial Average closed down 1.21% after news that the annual rate of US new home sales had fallen unexpectedly in September.

At close of trading Wednesday it had fallen 119.48 points to 9762.69. The NASDAQ Composite index also took a tumble down 56.48 points to 2059.61.

It was announced on Wednesday that new orders for durable goods rebounded in September after slumping the prior month, offering another sign that manufacturing activity is stirring in the US

European shares also fell fairly sharply yesterday, largely due to disappointing company results and negative US economic data.

Norway has become the first European country to raise its interest rates since the beginning of the global financial crisis. The country’s central bank raised the cost of borrowing from 1.25% to 1.5% in a move that was widely expected. A spokesman for the bank stated that the increase was necessary due to increases in inflation and recent unemployment figures that were considerably lower than previously projected.

Oil prices dropped by more than $2 a barrel on Wednesday, as the latest US weekly inventories data continued to show supply outstripping demand. All in all the expected recovery in the dollar weighed on investor sentiment towards the commodities market.

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