The financial week opened with the news that the City watchdog, the Financial Services Authority (FSA), was to investigate the events leading up to the Government bail-out of Halifax Bank of Scotland (HBOS) and Royal Bank of Scotland (RBS), both of which are now 70% owned by the British taxpayer. Chairman of the FSA, Lord Turner, has produced a report on the British financial system as a whole, but the new investigation – which could commence within weeks, subject to the response to invitations to assist from leading audit firms – will concentrate on issues such as risk management and director conduct. Whether or not sufficient information was made available to bank directors and shareholders will be amongst other areas of interest.
There was a glimmer of hope for the U.K. housing market, on Tuesday, with the release of the latest mortgage figures from the Council of Mortgage Lenders. The total number of mortgage loans taken out rose to 23,400 in February – up 4% compared with January – but the CML was keen to point out that activity in the market remained at a "very low level historically", according to the BBC website. Director General of the CML, Michael Coogan, was quoted on that same website, saying, "We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year." The market remains out of reach of many first-time buyers, who are required to find a deposit, typically, of 25%. Elsewhere, figures released by the Work Foundation highlighted the plight of regions of the U.K. traditionally associated with manufacturing and heavy industry. Cities in the North of England, the West Midlands and Scotland fared worst, in terms of unemployment, in the past year, with the number of people claiming unemployment benefit in Birmingham, for example, rising from 5.3% to 7.3% of the workforce. Large increases in the number of people claiming unemployment were also recorded in Leeds, Glasgow, Sheffield, and many other major centres of population.
By way of exemplifying the effects of the global banking crisis, UBS, the largest bank in Switzerland, announced on Wednesday that it will be cutting 8,700 jobs, after recording a loss ₣2 billion in the first quarter of 2009. UBS has been one of the largest sufferers from exposure to the sub-prime, or bad credit, mortgage market in the U.S., which was at the heart of the credit crunch. There was more encouraging news for the U.K. housing market, however, with the release of figures by the Royal Institution of Chartered Surveyors (RICS) indicating that new inquiries increased for the fifth month in a row in March. RICS said that although sales, themselves, remain at a low level – RICS members reported sales of, on average, less than 10 homes each in the first quarter of 2009 – there was cause for optimism for the remainder of the year. RICS spokesman, Ian Perry, was quoted on the BBC website, saying, "Buyer interest is starting to gain real momentum, but will remain frustrated while mortgage finance is scarce." The announcement provided a welcome fillip for Sterling, which rose to its highest level for three months against the dollar, at $1.50, and its highest level for six weeks against the euro, at €1.13. Sterling, of course, fell to its lowest level since 1985, at $1.35, in January as Britain officially entered recession.
On Thursday, the details of a deal between Lloyds TSB – now, of course, part of the Lloyds Banking Group – National Express, and Bombardier Transportation, based in Berlin, for train services between Stansted Airport and central London were revealed. In a deal worth €118, funded by Lloyds TSB, rolling stock – in the form of 30, four-car Electrostar trains – for the so-called "Stansted Express" services operated by National Express will be supplied and maintained by Bombardier Transportation. In related news, it was revealed that the chairman of Network Rail's remuneration committee, Jim Cornell, has written to all 104 members of the company's supervisory panel in defence of bonuses – in excess of £1 million, and funded, largely, from the public purse – to be paid to directors. Mr. Cornell rejected any comparison with bonuses paid by banks, but ministers were, nevertheless, petitioning the Chief Executive of Network Rail, Iain Coucher, for a voluntary reduction is his own personal bonus. Mr. Coucher received two such bonuses in 2008, taking his total salary to £1.24 million.
There was not much in the way of good news on which to end the week, but U.S. bank Citigroup did report better than expected first quarter figures. Indeed, it recorded its first quarterly net profit for nearly two years – $1.6 billion, compared with a loss of $5.1 billion 12 months earlier – and an increase in revenues to $24.8 billion. This is still equivalent to a loss of nearly $1 billion, once dividend payments to preferential shareholders are taken into account. Citigroup's share price rose $0.50, or 12.5%, and the optimism was reflected by U.K. banking stocks – Barclays and Lloyds Banking Group, in particular – which rose sharply during early trading on Friday. Elsewhere, mobile phone manufacturer Sony Ericsson announced a pre-tax loss of €358 million in the first three months of 2009, as a result of which it will shed a further 2,000 jobs – over and above the 2,000 previously announced – as it seeks to save €400 million. A spokesman for Sony Ericsson was quoted on the BBC website, saying, "As expected, the first quarter of this year has been extremely challenging for Sony Ericsson due to continued weak global demand." To top it all, the Council of Mortgage Lenders (CML) revealed on Friday that "negative equity" – that is, when the market value of a property is less than the outstanding balance on a mortgage secured against it – is now a reality for 900,000 homeowners in the U.K.. Thankfully, 66% of that number had a shortfall of 10% or less, but the fact remains that 2 million households are suffering from negative equity or insufficient equity to allow moving home.