Weekly Financial News Roundup
The major piece of financial news on Monday came from across the Atlantic, with the announcement that General Motors (GM) Corporation had filed for bankruptcy protection, in doing so marking the biggest manufacturing collapse in U.S. history. GM sold 8.5 million vehicles worldwide in 2008, and was second only to Toyota Motor Corporation in terms of global unit sales, but lost $30 billion dollars, and had already received $20 billion in state aid since the end of the year. The U.S. Government was expected to announce a further $30 billion in aid for the company, and restructuring was expected to result in 20,000 job losses. However, a proposed deal by Canadian automotive supplier, Magna International Inc., to buy the Vauxhall and Opel brands is likely to save GM Europe from bankruptcy.
There was better news for Sterling on Monday, as recent signs that the global economy is improving – better than expected manufacturing output in May in the eurozone and China for example – continued to weaken the dollar. The pound rose to $1.6288, its highest level for seven months, during early trading.
There was less welcome news for Birmingham-based van maker LDV on Tuesday, however, as Weststar, the Malaysian car importer that agreed a deal to acquire the company last month, withdrew, forcing it to reapply for administration. The Government provided Weststar with a bridging loan of £5 million to protect LDV from collapse during the acquisition, and Economic Secretary to the Treasury, Ina Pearson, was quoted on the BBC website saying, "This is clearly a worrying time for the workforce. We are ready to offer support to the workers through Advantage West Midlands and the Job Centre Rapid Response Team."
Elsewhere, it was revealed that no announcement regarding redundancies at Opel, or Vauxhall, would be made until Magna International Inc. has completed its takeover. Magna International has already said that it will cut 2,500 jobs in Germany, but, although an interim deal is expected next month, the deal is not expected to be finalised until September, leaving workers on tenterhooks until that time.
A range of economic indicators published on Wednesday suggested that the recession in the U.K. is easing. The Purchasing Managers' Services Sector Index rose to 51.7% in May, compared with 48.7% in April, indicating an expansion, rather than a contraction, in economic activity for the first time since April 2008. A survey by the Nationwide Building Society revealed that consumer confidence was at its highest level for six months, whilst a separate survey conducted by KPMG indicated contraction in employment in May.
Nevertheless, Lloyds Banking Group announced that it would be shedding a further 530 jobs in the U.K. by the end of 2010. A customer service unit in Kent is to close, with the loss of over 200 jobs, whiste the remainder are to be spread throughout retail operations, although no specific details were given. The latest round of cuts is in addition to the 625 job losses announced by Lloyds Banking Group in May.
The latest figures from the Society of Motor Manufacturers and Traders (SMMT), released on Thursday, revealed that car sales fell for the thirteenth month in a row in May and were, in fact, down 25% year-on-year. The SMMT figures did not, however, take into account the new scrappage scheme – whereby motorists can obtain a discount of £2,000 on a new car for scrapping a vehicle that is at least 10 years old – which was introduced by the Government on May 18th. The Government has set aside £300 million for the scheme, sufficient to fund a discount of £1,000 per car on 300,000 new cars, with an additional £1,000 per car provided by the motor industry.
General Motors, too, was in the news again on Thursday as it announced that it will continue to release financial statements after it emerges from bankruptcy protection as a private company, despite no obligation to do so in the eyes of the law. Chief Financial Officer, Ray Young, was quoted on the Reuters website saying, "There will continue to be a significant level of disclosure. In fact the new GM will be the most public private company." GM is hoping to emerge from bankruptcy protection in 60, or 90, days as a leaner version of its former self, but will be owned 60% by the U.S. Treasury and 12½% by the Canadian Government in return for financing.
After hitting a seven-month high against the dollar, at nearly $1.67, on Wednesday, the pound slipped back 1% to $1.6022 on Friday, its lowest level for a week. The pound also slipped to a two-week low against the euro, at €1.1277, after Defence Minister John Hutton became the latest minister to resign from Gordon Brown's cabinet, and the early local election results revealed a less than stellar performance by the Labour Party.
On the stock markets, share prices in mining giant Rio Tinto and its former rival, BHP Billiton, leapt by 13% and 10% respectively after Rio Tinto announced that its proposed $19.5 billion deal with the Chinalco ("Aluminium Corporation of China") had been scrapped in favour of a $15.2 billion share issue, and a joint venture between Rio Tinto and BHP Billiton in Australia. Investors were delighted at the news, which is expected to save the companies, collectively, around $10 million. Carphone Warehouse posted better than expected full year results, and announced that the demerger of its Talk Talk telecommunications business and its mobile phone business – which is to be involved in a joint venture with U.S. group Best Buy, with a rollout of new stores planned for next year – should be completed by July 2010, at the latest.