Weekly Financial News Roundup
The week opened with the revelation that the average number of jobseekers in the United Kingdom – that is, unemployed people claiming Jobseekers' Allowance – per vacancy advertised in job centres is now as high as 10. Figures released by the Trade Union Council (TUC) for January suggest that the number has more than doubled, year on year, and numbers in certain parts of the country are significantly above the average. The Isle of Wight, for example, has 60 jobseekers per vacancy, while Blaenau Gwent and Rhondda Cynon Taff, in South Wales, have 42 and 36 respectively. Across the country as a whole, there are 25 council areas where there are, at least, 20 jobseekers per advertised vacancy.
Elsewhere, in the financial sector there was better news for Barclays after it announced that it was to consult its shareholders regarding its participation in the so-called Asset Protection Scheme sponsored by the Treasury, and that it had held discussions with "potentially interested parties" regarding the sale of its Exchange Traded Funds business, iShares. The final decision on if – and if so how much of – Barclays' assets will be insured under the Government scheme will be left to shareholders, but estimates suggest that iShares, part of Barclays Global Investors, could be worth up to £5billion. The stock market responded kindly to the news, and Barclays' shares rose 22% during morning trading on Monday.
Royal Bank of Scotland (RBS), or more specifically its former Chief Executive, Sir Fred Goodwin, and his £16.6 million pension benefit hit the news again on Tuesday. Appearing before the Treasury Select Committee, Treasury Minister Lord Myers alleged that senior executives at the bank had concocted "an elaborate ruse" to prevent the disclosure of the scale, and circumstances leading up to the pension benefit. Lord Myers was quoted on the Times website saying that some board members were, "bending over backwards to be generous to Sir Fred." In any event, Sir Fred was not forced to resign but allowed to step down with dignity, in doing so invoking the clause that doubled the lump sum value of his pension benefit. The announcement was made back in October, on the same weekend as £20 billion of taxpayers' money was pumped into the beleaguered British banking system and has been the subject of public and political furore ever since.
In other news, publishing company Guardian Media Group (GMG) criticised the proposed Government bailout of Channel 4 – which may include merging with BBC Worldwide, the commercial arm of the BBC – as "flawed on a number of levels", according to the Guardian website. GMG is concerned that the merger will harm the commercial media market, insofar as it will hamper the ability of the commercial sector to provide public service content. Furthermore, GMG also pointed to the "glaring omission" of the negative effects of search engines and aggregators – Google for example – on investment planning by content companies from the interim Digital Britain report, published by Communications Minister, Lord Carter, earlier this year. The company was keen to point out that the Guardian itself provides video and audio content and is a "major provider of content that creates public value."
Following on from TUC announcement on Monday, the Office for National Statistics (ONS) released the latest official U.K. unemployment figures on Wednesday. The total number of people unemployed rose by 165,000, to 2.03 million during the three months to January – the first time unemployment has topped 2 million since 1997 – and February saw a further 138,400 added to the number claiming Jobseekers' Allowance which totalled 1.39 million. Brendan Barber, General Secretary of the TUC, was quoted on the BBC website, saying, "This is another milestone in the return of mass unemployment to the UK, and it will get worse before it gets better as unemployment always persists even after a recovery starts."
The banking sector and repercussions of the banking crisis largely dominated the financial news for the rest of the week. On Thursday, Chairman of the Financial Services Authority (FSA), Lord Turner, unveiled what he described as "profound" proposals for reforming the rules and regulations of banking in the U.K. to prevent a repeat of the financial crisis. Lord Turner is seeking to curb banks' ability to take excessive risk by lending too much during "boom" years plus tighter controls on hedge funds and bonus payments.
In related news a report by the National Audit Office (NAO) criticised the Treasury for its handling of the Northern Rock crisis. Northern Rock was still offering mortgages at 125% fully six months after it received an injection of cash from the British taxpayer, and lent a total of £800 million in that period. The report concluded that ministers were ill-prepared for the crisis and slow to respond but that, ultimately, nationalisation of the bank was in the best interest of the taxpayer. Head of the NAO, Tim Burr, was quoted on the BBC website, saying, "The Treasury successfully met its objective to protect Northern Rock's depositors and stopped the run on the bank." He did concede, however, that, "The Treasury could, however, have conducted a more systematic assessment of the risks it was taking on and more thoroughly tested the bank's initial business plan in public ownership."
On Friday it was revealed that despite Government pressure on banks to be lenient towards small businesses, in many cases, the reverse is true. According to a survey of 6,000 members of the Federation of Small Businesses (FSB), 33% of small businesses have had their bank charges increased or their overdrafts reduced, and many have had the terms and conditions of loans, including security, altered. The availability of finance is still a major problem for small businesses and even when it can be found businesses are not deriving any benefit from cumulative cuts in the Bank Rate.
As a footnote to yet another uninspiring week financially, the Society of Motor Manufacturers and Traders (SMMT) revealed the number of new cars produced in the U.K. in February was less than 60,000, a record fall of nearly 60% year on year. Reduced working and job losses continue to blight the industry as recession adversely affects new car sales and car manufacturers have turned to the Government for help for their finance arms.