Weekly Financial News Roundup
The week opened with good news for Barclays Bank which, despite issuing warnings regarding its earnings and impairments – including $8 billion in writedowns – two weeks ago, reported pre-tax profits of just over £6 billion. Although down 14% year-on year the figure was broadly in line with market expectations. The announcement came as the row over bonus payments by partially or fully nationalised banks – Royal Bank of Scotland (RBS), in particular, which was planning to pay its staff nearly £1 billion in bonuses despite record losses of £28 billion which resulted in the bank being 68% owned by the British taxpayer – raged on. Barclays has not so far taken advantage of the Government recapitalisation scheme but may do so in future and Chief Executive John Varley was keen to stress that Barclays' executive directors would be receiving no bonuses at all this year and that bonus payments to other members of staff would be "significantly lower" than last year according to the Sky News website.
Less welcome news from Japanese car manufacturer, Nissan, however, which announced its intention to reduce the size of its workforce globally by 8.5% between March 2009 and March 2010. This represents a total of 20,000 job losses – although Nissan has yet to reveal where exactly those jobs will be lost – and is due largely to a sharp fall in sales. Nissan expects to make a loss of ¥265 billion (£2 billion) in the current financial year and had already announced 1,200 job losses at its Tyneside plant last month. Nissan Chief Executive, Carlos Ghosn, was quoted on the BBC website saying "The global auto industry is in turmoil. Nissan is no exception."
Much of the financial news on Tuesday also revolved around the Royal Bank of Scotland as former Chairman, Sir Tom McKillop, and former Chief Executive, Sir Fred Goodwin, appeared before the Treasury Select Committee. Both men were quoted on the BBC website, Sir Tom admitting that the acquisition of Dutch bank ABN Amro in 2007 was a "big mistake" and Sir Fred saying that he "could not be more sorry" for the failure of the bank. The bank received a cash injection of £20 billion last year, in return for which the British Government took a stake of nearly 70%, but restructuring its business will cost 2,300 jobs – or roughly 2% of its workforce – in its back office operations across the United Kingdom.
The RBS job losses simply added to a spate of redundancies in recent weeks – including 27,000 at Woolworths for example – such that the total number of people unemployed is likely to rise to its highest level since the current Labour Government took office 12 years ago. The unemployment figure reached 1.92 million for the three months to November 2008 and as recession continues the figure is widely expected to rise sharply in the first six months of 2009 reaching 3 million at some point during the year. A crumb of comfort at least for some Standard Life customers with the announcement that nearly 100,000 who lost 5% of their money in its Pension Sterling Fund will be reimbursed after all. The institution originally planned to reimburse only a small percentage of customers, but after several weeks of concerted pressure from investors and financial advisors – Standard Life has been criticised for investing in risky, mortgage-backed securities, rather than cash, for example – appears to have had a change of heart.
On Thursday, Governor of the Bank of England Mervyn King announced that he is ready to resort to "unconventional measures" to stimulate the economy in the very near future. These measures include buying commercial paper – that is money market securities – government debt and so-called "quantitative easing" which again involves buying securities, but also printing money to pay for them. Neither the U.S. Federal Reserve nor the European Central Bank has yet to resort to such extreme measures and Sterling fell sharply against a basket of major currencies as a result of the announcement.
In other news, Sir James Crosby – once touted as the next Chairman of the Financial Services Authority (FSA) – resigned from his position as Deputy Chairman following allegations by an ex-employee regarding his conduct whilst Chief Executive of HBOS. Paul Moore, Head of Regulatory Risk at HBOS for the three years between 2002 and 2005, alleged that complaints that HBOS was moving too fast and taking too many risks were not correctly minuted at board meetings and that a culture of fear existed within the bank.
Bad news too on Friday for former shareholders of the nationalised Northern Rock, who learnt that their legal challenge to the Government regarding compensation had been dismissed in the High Court. Lord Justice Stanley Burton, one of the judges hearing the judicial review, was quoted on the BBC website saying "We have come to the conclusion that the provisions made for the compensation of the shareholders of Northern Rock do not infringe their rights." Former shareholders had earlier alleged that the Government had deliberately undervalued Northern Rock prior to nationalisation, tantamount, in their view, to an infringement of their human rights. Accountants have now been appointed to determine the value of shares and the amount of compensation to be paid.
Stylo, which owns the Barratts and Priceless shoe retail chains – already in administration as of 26th January – received a further blow, when a proposal for a CVA ("Company Voluntary Arrangement") submitted by its administrators was rejected by its creditors. The CVA would have allowed Stylo to close 150 of its 400 stores in the United Kingdom and restructure its debt, but the rejection means that Stylo too enters administration effectively putting nearly 5,500 jobs at risk if a buyer cannot be found.
To end the week on something of an upbeat note at least Saturday was of course St. Valentine's Day. The recession is likely to dampen Valentine's Day spending somewhat but 45% of British couples are likely to behave as they normally would, which means that restauranteurs can look forward to at least one night of increased takings and – given the number of proposals that occur on the most romantic day of the year – the possibility of anniversary dinners for years to come.