Weekly Financial News Roundup
The principal item of financial news on Monday took place on the other side of the Atlantic, but was important in the U.K. and across Europe for the positive effect it had on stock markets. The U.S. administration announced a so-called "Public-Private Investment Programme" which will allow up to $1 trillion, or £636 billion, worth of "toxic" mortgages and securities to be bought from banks in an effort to repair their balance sheets. The Treasury itself has committed up to $100 billion to the programme which will also be contributed to by the private sector. The announcement was welcomed by investors across the globe and share prices rose on stock markets in Europe and in Asia.
Elsewhere, further evidence of the effect of recession on advertising revenue was revealed by the Daily Mail and General Trust (DMGT), which announced plans to shed 1,000 jobs from its regional arm, Northcliffe Media. A spokesman for the company said that it expected a "substantial fall" in profits for the first six months of this year, which has resulted in double the number of job cuts that were estimated as recently as last November. Northcliffe Media publishes 113 newspapers in all in England and Wales, with a total weekly circulation of just over 4 million.
The repercussions of the global financial crisis seemed to be a popular topic for most of the week and on Tuesday Leader of the Opposition, David Cameron, added his voice to the debate. Mr. Cameron told the London Stock Exchange that he promised to bring "law and order" to the financial markets if the Conservative Party is successful at the next General Election and was quoted further on the Wales Online website saying, "Without proper financial regulation, there will be no lasting financial confidence, and without lasting financial confidence, there will be no lasting recovery." Mr. Cameron's opponents in the Labour Party where quick to accuse him of a U-turn, stating that he was in favour of less rather than more financial regulation in the period leading up to recession. On the same day German President, Horst Koehler – a former Managing Director of the International Monetary Fund (IMF) – urged countries in the European Union and beyond to increase their funding for the IMF and agree on a global financial plan.
Continuing the banking theme, on Wednesday HSBC – the largest bank in Europe – announced that it would be cutting up to 1,200 jobs in the U.K. in addition to those lost at its head office in London in December. A further 150 jobs will be lost in London, together with 280 in Leamington Spa, and an undisclosed number in Newport, Gwent. A spokesman for HSBC said that the majority of the cuts would be in back office operations, not High Street branches, but the total number of job losses was disputed by trade unions which claimed that anything up to 3,000 jobs could be lost.
The latest figures from the Office for National Statistics, also released on Wednesday, revealed that the Consumer Price Index, or CPI – the preferred method of measuring inflation – actually increased by a faster rate in February than it did in January. The rise – of 3.2% compared with 3.0% in the previous month – confounded many City analysts who had predicted that inflation would continue its downward trend.
The Treasury – or the Debt Management Office to be specific – began its programme of so-called "quantitative easing" on Thursday hoping to raise £1.75 billion through the sale of a 40-year Government bond. The Debt Management Office received acceptable bids for only £1.63 billion and whilst a shortfall of just over £100 million may not seem great, it must have been a blow, insofar as by its own estimates it needs to sell nearly £150 billion in Government bonds or "gilts" in 2009-2010 to finance the public sector.
The Icelandic banking crisis – which came to a head last October leaving £954 million invested by councils and other public bodies in Britain in limbo – was in the news again on Thursday. The Audit Commission singled out seven English councils for criticism, accusing them of "negligence" for investing a total of £33 million in Icelandic banks just before their collapse despite insolvency warnings. These investments are, unlike individual deposits, not guaranteed by the British Government, and as many as 18 local authorities have more money deposited in Icelandic banks than they have in their own reserves. Councils were keen to point out, however, that for all its criticism the Audit Commission itself has £10 million tied up in Icelandic banks.
Research released by National Savings & Investments (NS & I) on Friday suggested that despite the onset of the credit crunch savers continued to save consistently throughout 2008. Even the banking crisis failed to affect the 47% of British people who made regular deposits into a savings account each month, and, in fact, the average monthly deposit rose to just over £200 during the winter months, compared with £193 during the summer. Good news too for Legal & General Investment Management (LGIM) which published its end of year figures for 2008 on Friday. Its pre-tax profits rose by £25 million to £172 million, despite the credit crunch, and at the end of the year its investment division had just over £264 billion under management.
However, further data released by the Office of National Statistics on Friday revealed that the contraction in GDP ("Gross Domestic Product") in the last three months of 2008 was even more abrupt than anticipated. The economy shrank by 1.6% in the final quarter, the sharpest fall since 1980, and the annual rate of decline was revised down to 2%, the sharpest fall since 1991.