Weekly Financial News Roundup
There was good news for the Dunfermline Building Society at the start of the week insofar that just 2 days after its sale was announced by the Government, it was revealed that its branches, good loans and deposits were to be bought by the Nationwide. The Dunfermline – the largest building society in Scotland, and the twelfth largest in the United Kingdom – incurred losses of £26 million in 2008, including £650 million in commercial property and £150 million in sub-prime mortgages in England. The Treasury will take on a total of £1.5 billion worth of debt under the deal, which was made possible by new powers granted to the Bank of England under the Banking Act. The 140-year-old mutual will retain its name, but there may be job losses from its back office and support operations, according to the Nationwide.
In related news, compensation structures at many of the world's largest banks are set for a radical overhaul if the results of a recent survey by the banking industry's leading trade body are to be believed. Over 90% of respondents to a recent survey conducted by the Institute of International Finance (IIF) indicated that they would be moving towards a payment structure based on the amount of risk taken by employees to generate profits. This could mean that investment bankers have to wait several years to receive any bonuses. According to the Wall Street Journal website, the IIF report said, ""The Institute of International Finance takes the view that it is lasting change to compensation structures and governance that will be key to helping to prevent a repeat of the current market crisis, as well as driving the rightsizing of compensation."
Elsewhere the Government announced that the UKAEA Limited, the commercial arm of the Atomic Energy Agency in the U.K., is to be put up for sale and expected to be sold by the end of 2009. The company supports the building of new nuclear power plants, as well as offering waste management and decommissioning services. Business Secretary Lord Mandelson was quoted on the BBC website, saying of the proposed sale "As the UK moves towards an era of nuclear new-build, this sale will increase efficiency, competition and value for money for the taxpayer in the decommissioning and clean-up work of old nuclear power stations."
Bad news – at least on the face of it – for Marks & Spencer on Tuesday, with the High Street retailer reporting a fall in sales for the fourth quarter in succession. Like-for-like sales for the 13 weeks to 28th March were down 4.2%, but this was still significantly better than expected – a fall of up to 7.5% had been forecast – and shares in M &S were up by as much as 10% in early trading.
Elsewhere media giant Google unveiled its venture capitalist arm, Google Ventures, which will offer investment, at an early stage, to what its partners described as "exceptional start-ups". These will include companies in the areas of consumer Internet, software, biotechnology and healthcare, but also "areas we haven't thought of yet", according to the partners.
The big news on Wednesday was, of course, the meeting of U.S. President, Barack Obama, with Prime Minister, Gordon Brown, in Downing Street ahead of the G20 summit later in the week. The leaders of the G20 were to meet in London on Wednesday and Thursday to discuss measures to tackle the global economic crisis. President Obama spoke of a "sense of urgency", whilst Gordon Brown said that the G20 leaders were just hours away from agreeing a plan of economic reform. Thousands of demonstrators – up to 4,000 according to police estimates – gathered in the City of London and a small group threw missiles at police outside the Bank of England, and broke windows at the Royal Bank of Scotland branch nearby.
Tension continued on Thursday, with thousands of police from six police forces and troops deployed as part of a security plan costing £7.5 million. Tear gas and rubber bullets were fired as a crowd of protestors, many of them masked, attempted to reach the City and around 100 arrests were made. Inside the ExCel Centre, in the London Docklands, however, the G20 leaders pledged $750 billion to the International Monetary Fund (IMF), $250 billion to improving world trade, and $100 billion for lending by international development banks, or a total of $1.1 trillion (£681 million) towards tackling the global crisis. President Obama hailed the G20 summit as a turning point in economic recovery, and was quoted on the BBC website, saying that the G20 had agreed upon, "unprecedented steps to restore growth and prevent a crisis like this from happening again." Mr. Obama left Britain for Strasbourg, where he was to hold talks with French President, Nicolas Sarkozy, and German Chancellor, Angela Merkel, prior to the commencement of a NATO summit.
Figures released by the Halifax – now of course part of the Lloyds Banking Group – on Friday suggested that house prices fell by 1.9% in March, compared with February, taking the cost of the average U.K. home to just over £157,000, or more than £30,000 less than a year ago. Elsewhere, Sir Philip Hampton, Chairman of Royal Bank of Scotland (RBS) revealed that he had resumed dialogue with former Chief Executive, Sir Fred Goodwin, regarding a possible voluntary reduction in the value of his controversial pension award. Sir Fred was awarded a pension of £16.9 million – or £703,000 a year – at the same time that RBS received a bailout, worth £20 million, from the Government, and has so far refused to surrender any of it despite public and political outcry. Sources close to Sir Fred insisted that, despite discussions between the two ten days ago, they had been unable to reach agreement and Sir Fred considered the matter closed. The mixed messages came ahead of the RBS AGM in Edinburgh, and followed vandalism to Sir Fred's home and car last week.