Weekly Financial News Roundup
The financial week opened with the news that Lloyds Banking Group – already 43% owned by the Government – had signed up to the Asset Protection Scheme, in an effort to insure £260 billion of its so-called "toxic" assets against further loss. The Government stake in the bank will rise from 43% to 65%, but it was reported that there was still some £80 million available to members of staff in cash bonuses. Lloyds was keen to stress, however, that those members of staff receiving bonuses earned, on average, £17,000 per annum. Members of the Lloyds board of directors will receive no bonus, and other senior members of staff will have to wait until 2010 or beyond to receive theirs, depending upon their performance in the interim. The news was not welcomed by the London Stock Exchange, where Lloyds share price fell by nearly 8%.
Elsewhere, the largest car manufacturer in the world, Toyota, announced that it was in discussions with employee representatives regarding further cutbacks – including shutdowns and restrictions to the working week, in it plants in Deeside and Derby – to its operations in the U.K., the results of which were to be made public later in the week. A voluntary redundancy scheme already exists at Toyota – employees can apply for a "quotation" regarding redundancy pay – and a spokesman for the company was quoted on the BBC website, saying, "We are making every possible effort to secure employment, but we need to cut costs further."
Not much cause for optimism in the housing market when on Tuesday the Royal Institute of Chartered Surveyors (RICS) announced that average sales over the three months to February were down, from 9.8 per surveyor in the previous survey, to 9.5. This represents the lowest average sales figure since 1978, and supplementary data from Halifax and Nationwide suggested that housing prices are down around 20% from their 2007 peak, as lack of available finance and worries over unemployment continue to stifle the housing market. Chancellor of the Exchequer, Alistair Darling, also revealed, in an interview for the BBC, that he is likely to downgrade his economic forecast in the Budget, due on April 22. Mr. Darling said, "'There is no doubt that in the last quarter of 2008, what we saw was a very sharp downturn, not just in our country, but you saw it in America, you saw it in Germany, you have seen a lot of European countries have now gone into recession."
In other news, the extent to which cumulative cuts in the Bank Rate – from 5% in October, 2008, to just 0.5% – has hurt savers was revealed. High Street lenders have continued to pass interest rate cuts on, such that a typical notice account now yields just 0.18%, whereas, as recently as September 2008, the same account yielded 3.24%. Typical instant access savings accounts offer worse returns still, and the average interest rate on an ISA ("Individual Savings Account") – a tax-free savings account, with a personal allowance of £7,200 in cash and stocks and shares – has dropped from 4.49% at the end of September to just under 1%.
Speaking of the Bank of England, on Wednesday the Bank held the first of its bi-weekly "auctions", offering to buy £2 billion of Government bonds or "gilts" from individuals and institutions, as it began its process of quantitative easing. Quantitative easing effectively involves the creation of new cash – £75 billion initially, although the Bank has permission from the Treasury to extend this to £150 billion if need be – which is circulated in the wider economy, with the intention of encouraging lending. Quantative easing has never before been attempted in the U.K..
On Thursday, Chief Executive of the FSA ("Financial Services Authority") told a group of leading London financiers, "There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA", according to the Reuters website. He added that companies would be judged on the outcome of their actions rather than mere box-ticking. This appears to signal the end of the "light touch" regulation, or self-regulation, which has been a feature of the financial service industries in the U.K. and the U.S. for the past 20 years or more. It is hard to imagine that British taxpayers would be anything but delighted with the news, given the billions and billions of pounds of taxpayers' money that have been ploughed into the beleaguered banking sector in recent months.
Perhaps only a brief moment of light relief for the average consumer or small business owner – but proof, nevertheless, that the global recession is affecting each and every one of us regardless of our wealth – on Thursday too with the release of latest "rich list" by Forbes magazine. The latest list of world billionaires contains 793 names, compared to 1,125 a year ago, and only 44 people on the list managed to increase their fortune in the past year. 656 people on the list – including Microsoft founder, Bill Gates, who lost $18 billion, and investor Warren Buffet, who lost $25 billion – lost money, at an average of 23%, but the collapse of the stock market to regain his position at the head of the list, despite his losses.
It may be a case of drowning their sorrows for some people, but public house operator, JD Wetherspoon, revealed on Friday that its like-for-like sales were up 1.9% for the six months to the end of January, and total sales were up 6.5% at nearly £469 million. Its decision to sell a pint of Greene King IPA for just 99p – a price last seen in 1989, against a national average of £2.75 a pint – therefore seems partially vindicated. Wetherspoon's Chairman, Tim Martin was quoted on the Sky News website saying, "The enemy of pubs at the moment is the Government. If it doesn't stop trying to increase taxes and costs, pubs and businesses in Britain are going to be in for a really hard time." Here's to you, Mr. Martin.