Weekly Financial News Roundup
Turmoil in the global financial markets once again dominated the financial news early in the week. Asian stocks dropped markedly on Monday – share prices on the Tokyo Stock Exchange closed at their lowest levels for 26 years and the Hong Kong Stock Exchange suffered its worst losses for 11 years – and selling was brisk on Wall Street too, late in the afternoon. By way of testament to the delicate state of existing and emerging markets it was also announced that the IMF ("International Monetary Fund") had agreed rescue packages for Ukraine to the tune of £10 billion (€13 billion) and Hungary to the tune of £9.5 billion (€12 billion); Hungary was also to receive further loans, totalling £6 billion (€7.5 billion) from the European Union and the World Bank. Elsewhere, it was confirmed by the Downing Street office of British Prime Minister Gordon Brown, that he would be visiting the French President, Nicolas Sarkozy in Versailles on Tuesday to discuss the financial crisis. The talks were intended as a precursor to the European Union summit and meeting of G20 leaders taking place in Brussels and Washington respectively later in the month.
Good news on Tuesday, at least for Gordon Brown and for oil major BP, but less so for the major financial institutions in Britain. The latest Financial Stability Report from the Bank of England, revealed that the value of "writedowns" – that is, reductions in the book value of assets that are overpriced, in relation to their real market value – facing banks etc. has increased by over 100% since the report was last updated in April 2008. The major lenders could face total credit losses of up to £130 billion (€166 billion) over the next 5 years once bad debts on mortgages credit cards etc. are included in calculations, according to the Bank. Prime Minister Gordon Brown on the other hand, must have been delighted to learn that his handling of the financial crisis has reduced the lead of the Conservative Party to just 8%, according to an opinion poll conducted on behalf of "The Independent". The poll positioned the Conservatives in first place with 39%, Labour second with 31% and the Liberal Democrats a distant third on 16%. BP announced recorded third quarter profits of £6.4 billion (€8 billion) although the recent collapse of crude oil prices virtually guarantees that this level of profitability cannot be maintained.
Following an increase of 11% in the Dow Jones Industrial Average Index in the United States on Tuesday, share prices in the United Kingdom and elsewhere in Europe rose sharply on Wednesday morning. The FTSE 100 Index for example rose 5.3%, buoyed by the expectation that the Bank of England and the ECB ("European Central Bank") would propose a further cut in interest rates to accompany the 0.5% cut made earlier in the month.
Financial news for the rest of the week was not quite so good. The latest survey by the Nationwide Building Society revealed that property sales were at their lowest levels since 1974 – the time of the original three-day week, and 20% inflation – and that property prices had now fallen by nearly 15% in a 12-month period. The price of an average house was nearly £30,000 (€38,000) less than in October 2007, at just under £159,000 (€202,000). Elsewhere British Chancellor of the Exchequer, Alistair Darling implored British banks to take advantage of the £4 billion (€5 billion) support package supplied by the European Investment Bank to help businesses, if not to prosper, then at least to survive during the financial crisis. According to "The Independent" website, Mr. Darling told the Commons: "We, on behalf of the taxpayer, have put a lot of money into the banking system because we recognise its importance. They, in turn, have to recognise the importance, not just to the country but to banks themselves, in ensuring that small and medium sized enterprises get the support they need." Mr. Darling rebutted criticism for his opposite number, Shadow Chancellor George Osborne and warnings over "Keynesian spending splurges" – a reference to 20th century economist, John Maynard Keynes – by telling the House bluntly, that the Conservatives "haven't a clue" about the financial crisis and how to deal with it.
Just as the week started with heavy losses in Tokyo and Hong Kong, so it also ended. Following three days of strong gains in Japan – in which the Nikkei 225 Index rose by 26% from its 26-year low on Monday – a decision by the Bank of Japan to cut interest rates for the first time since 2001 resulted in a sell-off of shares late on Friday. The Nikkei 22 Index ended at its lowest point of the day, down 5%.
Barclays announced plans to raise up to £7.3 billion (€9.3 billion) by selling a £5.8 billion (€7.4 billion) stake to Middle Eastern investors – namely the Qatar Investment Authority and the Abu Dhabi Investment Authority – and a £1.6 billion (€2 billion) stake to other shareholders, rather than selling to the British government. Barclays chairman, Marcus Agius was quoted on the BBC website, saying "Given the continuing uncertainties in the world capital markets, the Board of Barclays resolved to satisfy the capital raising requirements agreed with the UK authorities without delay. This we have done." Shares in the bank, the second largest in Britain rose by 8% following the announcement but Vince Cable, Treasury spokesman for the Liberal Democrat Party was outraged at the proposal. According to "The Guardian" website he said "This is a scandal of mammoth proportions. Here is a bank which relies on the taxpayer to bail it out if the going gets rough but which has offered Middle Eastern investors a much better deal than the banks are offering to the British taxpayer." Barclays has never been afraid to court controversy, but for a bank whose reputation for customer service is none too stellar – Barclays actually fared worst of 4,000 British brands in a customer loyalty survey conducted in 2007 – it remains to be seen how its customers react to the latest news.