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Rights issues appear to be the way to buy time for companies

April 9th, 2009 by admin | Filed under Daily News, Global Credit Crisis, Recession, UK Banks.

Falling fast in the footsteps of HSBC who enjoyed some fabulous success with their recent rights issue, it looks like 2009 will be the year of the rights issue in the UK. So far, seventeen British companies have been successful in rising close to £25billion through share issues, twenty times more than raised in the first three months of 2008 through rights issues.

The state of the UK economy still is giving cause for concern with a recent report stating that it could remain in a state of decline for another twelve months, requiring a further two years to reach some form of full recovery.

Comparisons to the economic slowdown of the early1980s. could only be drawn, as well recent admissions from Chancellor Alistair Darling that the Treasury had miscalculated both over the length of the recession and its severity. The report stated that the UK economy had contracted by over 4.2% since May 2008.

Manufacturers’ output fell 0.9 percent between January and February, although the pace of the drop was the slowest in half a year, according to a UK government statement.

The current fall in output left it 13.8 percent lower than a year ago with the biggest drops coming in the transport equipment industry and the nonmetallic mineral products sector.

News that the BOS is to cut up to 9,000 jobs worldwide will come as no surprise. The cuts, the largest in any of the major UK banks in overheads conscious 2009, will come in areas such as technology and call centres. The BOS, now mostly owned by the UK taxpayer, has already made around 3,000 job cuts and with the proposed layoffs will mean the bank will have laid off around eight percent of their workforce. The layoffs are part of a major cost cutting plan, which entails cutting overheads by 14% over the next three years.

BOS will be sure to looking at employees’ pensions, following in the wake of news that one of the world’s largest insurance brokers is cutting its contributions to its workers’ pensions by up to half in its UK operations. The company, insurance broker Aon announced that they would be the first UK major company to cut payments to its workers’ defined contribution schemes. The move will mean Aon employees having to increase their current contributions by up to three times to keep matching payments at existing levels.

Spiralling pension costs are rising to the top of corporate agendas as employers struggle to cope with the deepening recession with experts estimating that Aon which employs 5,000 people in the UK, could encourage many other employers to follow suit.

In the FTSE, HSBC, Europe’s biggest bank, took a few steps backwards after their rights issue success. Their shares fell by 3.3 percent (14 pence to 427.5)

The UK’s largest hedge-fund manager Man Group reported their fifth weekly decrease in net asset value. Shares in the company fell 4.2 percent (9 pence to 216.5)

The dollar advanced on Tuesday despite renewed concerns over concerns that the International Monetary Fund (IMF) was about to raise their forecast of the total global toxic debt. It is now estimated that the toxic debt, held by banks and insurers across the globe is over $4,000billion almost double the $2,200billion that was estimated at the beginning of the credit crunch.
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