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Banks strike back at Darling

December 14th, 2009 by tom | 0 Comments | Filed in Central banks, Daily News, Debt, Exchage Rate, Recession, Retail, Stocks and shares, UK Banks, UK employment, World Banks

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Key figures in the UK banking world announced their dismay and subsequent anger after Alistair Darling confirmed plans for his 50 per cent "supertax" on banks’ bonus pools. The reaction from one leading UK going as far as went as far as describing the measure as an "assault on the prudent and the profitable". Bob Diamond, the president of Barclays continued to voice his displeasure by implying that that bankers and institutions were "mobile and they might desert London’s financial centre. The one-off tax will be imposed on banks rather than individuals, and will also apply to building societies

Similar moves to tax bonuses on bankers are also being considered by both Germany and France, with the German banks even considering the imposition of self-discipline on pay while France is in favor of matching the U.K.’s planned one-off tax on bank bonuses, and is likely to slap such a levy on bonuses to be paid out in 2010 for the past year.

According to a report released last week, London could be pushed into third place as a global financial centre by Shanghai within the next ten years.

Global business leaders apparently are becoming increasingly convinced that the West is facing accelerated competition from the East, with more than 90% of company owners and managers in Shanghai and Mumbai are confident in their economic outlook for 2010, compared to 22% of business leaders in London and 35% in New York.

Meanwhile to add to the U.K.’s banking system’s woes, comes the news that the Financial Services Authority intend strengthening their rules governing the amount as well as the quality of capital that banks in the U.K. need to hold against potential losses as part of an effort to implement changes to European Union rules. Their proposals are expected to result in a £33 billion, or 5%, increase in the total amount of capital held by banks, with the bulk of this required to be held by the start of 2011.

On the FTSE before the weekend, shares in Barclays Plc , climbed 4.6 percent, to 290.75 pence, possibly on news that the bank is about to eliminate around 150 jobs from its retail and commercial banking operations in India. With the news that British Airways Plc have decided to retain p full ownership of its OpenSkies subsidiary, their shares rose 1.1 percent, to close on 202.3 pence.

The U.K.’s largest CD retailer HMV Group Plc posted a loss after tax of £17.8 million in the six months period ending Oct. 24, an improvement on the loss of £19.8 million pounds in the year-earlier period. Despite the relatively positive news their stock dropped 0.2 percent to 106.6 pence.

Independent News & Media Plc, publisher of The Independent Newspaper is looking to reduce their holding in APN News & Media Ltd. One the news their shares advanced 0.2 cent to 10 cents.

As the Cadbury takeover sage continues, news that rift has opened up between Hershey’s management and the Hershey Trust over whether to trump Kraft’s hostile bid for the company. The Trust, a philanthropic body that controls Hershey, is pressing the management to go ahead with an offer while the board argues that a bid financed by extra debt could put the company’s investment grade rating at risk. Cadbury chief executive Todd Stitzer has let it be known that he considers Hershey a better cultural fit than Kraft. On Monday morning, Cadbury is expected to make a formal rejection of that Kraft offer but is unlikely to make any official statements regarding their talks with Hershey, as a formal bid has yet to table. However the company is expected to release an interim update of their trading figures.

Sterling lost ground against the dollar before the markets closed for the weekend whilst rising slightly against the Euro.

  • Pound/US dollar 1.6221
  • Pound/Euro 1.1081

The FTSE 100 Index rose 17.2 points to close on 5,261.57. The index has shown a 50 percent recovery since March and looks to be heading for its biggest annual gain since 1997.

The US House of Representatives has approved the most sweeping changes to the country’s financial sector since the Great Depression of the 1930s. The 223 to 202 vote is a victory for President Obama who has made financial reform one of his main goals. The bill aims to create a new agency to monitor consumer banking transactions and give the government powers to break up companies that threaten the economy. The US Senate will have to pass the bill before the president can sign it. The legislation would give regulators the power to dismantle the companies in a way which ensures shareholders and unsecured creditors, not taxpayers, bear the losses. It also hopes to strengthen the powers of the Securities and Exchange Commission to detect irregularities that could provide an early warning of fraudulent investment schemes. Plans to regulate the vast $600 trillion market in products called derivatives are also included.

On close of trading Friday, the Dow Jones Industrial Average had risen 186 points to 10,471.5 and the NASDAQ was also up around twenty points to 2,190.31

Kenneth Feinberg, the White House "pay czar" has extended limits on the pay of executives at four US firms who were given government bailout money.

Under the restrictions, employees will not be able to earn more than $500,000 (£307,770) per year.

The companies involved are Citigroup, AIG, General Motors and GMAC, with the rule applying to the 26th to 100th highest paid staff. The top 25 at each firm had their pay limited in October. Free of any such pay restrictions are the

Bank of America who succeeded in repaying their "bailout "money as recently as this week, while Chrysler and Chrysler Financial were exempted because total pay for their second-tier executives is already under the magic $500,000 barrier.

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UK waits in trepidation for the coming of the “toxic bank”

January 19th, 2009 by admin | 0 Comments | Filed in Daily News, Global Credit Crisis, Money Management, Recession, UK Bank Accounts, UK Banks

A plan that has been hovering in the breeze for the last few days to establish a bank to handle the billions of pounds of worth “toxic debts” is expected to be announced today. Continuing the trend of “state-owned” banks and interventions to try and breathe some life into a very ailing economy, the “toxic bank” will function to “fence off “an area where all that remains of the UK banks don’t want to go. The billions of pounds of very bad debts that no one can handle yet won’t go away. In an attempt to prevent write offs and further devalue the banks’ value, Gordon Brown and Alistair Darling see the freezing of these debts as the lesser of several evils, in their undying efforts to squeeze some optimism into the life of the UK economy. Under the terms of the toxic bank scheme, a new state-controlled insurance company is to be established to provide cover in the event of bank customers defaulting on loans as well as allowing banks to have their bad loans underwritten. The terms are yet to be announced, but it is understood that the banks will be required to pay a fee to have their bad loans underwritten by the taxpayer, and only up to a certain level.

All of these measures are being made to encourage the partly state owned banks as well as the wholly state owned Northern Rock building society to begin to ease up on their self imposed lending restrictions.

The government’s hope is that by creating a “toxic bank” they would witness a lowering of the risk ratio on current loans. This would allow the banks to begin lending again without fear that their bad debt ratio would become out their boundaries. The formation of an insurance trust would prevent the loans being written off, in the hope that they would come good in time. Estimates are that there are 260 billion pounds of toxic assets spread across British industry, which the banks would have difficulty in reclaiming. This in fact means that the UK banking system is technically insolvent if only temporarily. The 22 billion pounds that the taxpayer-funded injection could provide some temporary respite to the lending crisis.

Over the weekend, there was little else to be cheerful about . Ernst and Young predicted that by the end of 2010, there will be more than three and one quarter million unemployed, and this figure could begin to approach three and half million by the middle of 2011.

One person moving jobs is Sir Philip Hampton, who is to become the next chairman of Royal Bank of Scotland. Sir Phillip, currently Sainsbury’s chairman has earned a strong reputation in UK banking circles due to his central role in the government’s “nationalisation” of the banks

The appointment was announced, as the bank’s shares had sunk to an all time low, with fresh fears of a further government intervention, diluting their share value even further.

Hampton will begin his introduction to the daunting task in front of him as early as today when he takes the post of deputy chairman of the RBOS, and will officially replace the incumbent chairman Sir Tom McKillop in April 2009, at the Bank’s annual general meeting. Sir Phillip will also remain in his post as chairman of Sainsbury, while stepping down as chairman of UK Financial Investments Ltd (UKFI), UKFI were established to manage the government’s 58 per cent stake in RBS as well as the other banks subscribing to its recapitalisation fund.

Also moving chairs is former UK Chancellor Kenneth Clarke who is expected will return to the Conservative front bench as part of a major reshuffle due to be announced later today, Clarke is expected to be handed the role of

The role of shadow business secretary by Tory leader David Cameron.

This means a return to facing off to his Labour party counterpart, Lord Mandelson, with the current shadow business secretary Alan Duncan expected to be offered another post.

Across the water, realities also continued to bite, and often quite hard. The long awaited announcement that the Irish government was nationalising Allied Irish Banks finally arrived. In the US, Bank of America announced that it was to receive a further a $20bn injection of emergency funding from the US government.

This was brought on by the news announced late Friday that , against predictions very much to the contrary, Merrill Lynch, had made losses of more than fifteen billion US dollars in the last quarter of 2009.

Lagging not too far behind were the ailing Citigroup who announced losses of more than eight billion US dollars for the final quarter of last year. The bank announced that they will be splitting themselves into two separate divisions. One , and revealed plans to split itself into two .separate and autonomous divisions

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The tax payer is protected…it’s just wage earners and investors that are on the hook

October 11th, 2008 by admin | 0 Comments | Filed in Daily News, Global Credit Crisis, Money Management

The £500bn ($875bn) bailout in the UK of the banking system has implications for the people of the UK, but probably not the tax payers. The deal is based on the Swedish model that proved successful in the 1990s when the Swedish government took an equity stake in several banks and later sold the shares at a profit. It’s likely that the same result will follow in this banking deal. Gordon Brown urged World leaders to follow Britain’s lead and do similar deals to try and unfreeze the credit markets globally.

The deal however, has implications for those on fixed incomes and those with savings. Let me explain. The money has to come from somewhere…it will likely come from printing presses, hence the pounds fall against even the dodgy dollar over the last 2 days. Per capita, the UK bailout bill is about 6 times greater than the US bailout bill…ouch! Once the money has been created, it will devalue all the other currency in existence in the UK. This means inflation and heartache for holders of British pounds. So while details of the plan are eerily sketchy, they look similar to Warren Buffets deal with Goldman Sachs, the British tax payer gets preference shares  and dividends for as long as they hold the shares. They also get to call a few shots at the top regarding executive and  To get an idea of how much equity the initial £25bn will buy in British banks, it’s over half of the current market value of the top 4 banks in the UK right now.

That means that the government has in essence taken over the banks and along with the levers of political and legal power, the UK government now has at it’s disposal the levers of retail financial power. Does this make anyone else uneasy? Hopefully, not tyrannical or dictatorial individuals will find their way into number 10. If they do, it will be awfully hard to get rid of them!

The signs aren’t good, the markets have still plummeted in the wake of this bailout…confidence doesn’t look to be restored…in fact the opposite seems true.

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