Weekly Financial News Roundup
Poor European election results – in fact, the poorest since World War II – which saw the Labour Party poll just 15.3% of the vote, and fall into third place, behind UKIP ("United Kingdom Independence Party"), cast further doubt over the future of Gordon Brown as Prime Minister on Monday. Sterling fell further against the dollar and, by mid-morning, was down 1.5 cents at $1.5821, as uncertainty continued.
There was some better news for taxpayers, however, with the announcement that a new rights issue by Lloyds Banking Group had been strongly supported by its shareholders. 87% of the heavily discounted shares were taken up, such that Lloyds Banking Group is set to repay £2.3 billion of Treasury funds. The offer was underwritten by the Treasury, potentially increasing its stake in the bank from 43% to 65%, but the government said that the level of uptake was a sign of growing faith in the banking sector.
Lloyds Banking Group announced on Tuesday that it will be cutting a further 1,660 jobs, on top of the 3,000 already lost since its merger with Halifax Bank of Scotland (HBOS) which was granted final approval in January, 2009. All Cheltenham & Gloucester (C&G) branches will be closed and the brand will disappear from the High Street by November although it will be retained for mortgages and savings.
It was also reported that Irish broadcaster Setanta faced administration "within days" according to the BBC website, unless it was able to raise funds to pay the £30 million it owes to the English Premier League. Setanta has more than 1 million subscribers but is losing up to £100 million per annum according to some estimates, and already owes the Scottish Premier League £3 million in unpaid television rights. A spokesman for Setanta declined to comment but subscription to Setanta Sports was suspended.
Elsewhere, German tourism and retail group, Arcandor AG – which owns 53% of Thomas Cook, itself, the second largest travel group in the world – filed for bankruptcy protection after the German government declined to offer loan guarantees of €650 million (£553 million). Arcandor was keen to point out that, whilst its bankruptcy filing covered its German department store business, Karstadt, and its mail order business, Primondo, Thomas Cook would remain unaffected.
On Wednesday it was revealed that beleaguered broadcaster Setanta had already approached rival BSkyB, offering live rights to 46 English Premier League matches next season in return for £50 million in its effort to avoid entering administration. Setanta held an emergency board meeting on Tuesday night but the future of the company in the event of collapse remained unclear.
Elsewhere on Wednesday, however, there was better news for the British economy with the latest figures from the Office of National Statistics (ONS) suggesting that industrial output rose by 0.3% in April compared with March. The rise was at odds with industry analysts who predicted a fall of 0.1%, and represented the first month-on-month increase since February, 2008. Separate figures from the ONS, however, suggested that the U.K. trade deficit with the rest of the world widened, to just over £3 billion in March, compared with £2.7 billion in April. The National Institute of Economic and Social Research (NIESR) also estimated that the economy grew in April and May.
The good news continued on Thursday with the results of a survey by the Bank of England revealing that expectations for inflation rose to 2.4% in May, compared with 2.1% in February, suggesting that recession in the U.K. may be coming to an end. Figures from the Council of Mortgage Lenders (CML) also revealed that the number of mortgage loans taken out in April – whilst still down 28% year-on-year – was up 16% compared with March.
The housing market is undoubtedly improving, especially for first-time buyers, but they are still being asked to find 25% of the purchase price of their new home, on average, as a deposit. Given that the average U.K. house price was £154,016 in May, according to the Nationwide, this still represents a figure of £38,000, but the house price to earnings ratio, a key measure of the affordability, fell to its lowest level since January 2003 at 4.36 in May. The combined economic news was sufficient to lift Sterling to its highest level against the euro since the start of the year on Thursday with the pound trading briefly at €1.1745, before dropping back to €1.173.
There was, however, a reminder of financial crises past on Thursday with the all-party Communities and Local Government Select Committee criticising local councils for complacency, lack of expertise and inaction in the period leading up to the collapse of Landsbanki and other Icelandic banks in October, 2008. Scores of local authorities invested nearly £1 billion with Icelandic banks, in some cases just days before the collapse and although an investigation by the Audit Commission was satisfied that "the majority of councils acted properly", seven councils – including Kent County Council, which invested £50 million in three Icelandic banks – were found to have breached guidelines.
Barclays announced on Friday that it had sold its Barclays Global Investors division in its entirety to U.S. asset manager, BlackRock, for $13.5 billion (£8.1 billion), in preference to selling its ETF ("Exchange Traded Fund") business, iShares, to CVC Capital Partners as originally agreed. BlackRock will pay $6.6 million in cash and the remainder in shares to complete the deal, generating a windfall of £365 million for Barclays staff, who own 4.5% of the division, and £16 million for Chief Executive, Bob Diamond.
After the failure of talks with rival BSkyB, and denial by ESPN that it was interested in buying Setanta Sports, the broadcaster may finally have been handed a lifeline on Friday by a new investor. The Setanta board was meeting on Friday to discuss a deal with the new investor – believed to be U.S. investor, Len Blatavik, already involved with Top-up TV – which could be completed within 72 hours.