Weekly Financial News Roundup
Following its record 13.4% rise during last week – which, nevertheless left it 34% lower for 2008 as a whole – the FTSE 100 opened 30 points or 0.8% lower on Monday morning. This was due in part to a fall in mining stocks, and retailers were also under close scrutiny ahead of the festive season, and the release of third quarter figures from supermarket giant Tesco, due on Tuesday. There was some good news however for homeowners struggling as a result of falling house prices and the economic downturn in general; Royal Bank of Scotland (RBS) which owns NatWest, announced that it would not start repossession proceedings against homeowners until they are six months – double the period recommended in government guidelines – in arrears. Managing Director of Retail Banking, Craig Donaldson, was quoted on the Reuters website saying, "We fully understand that one of the biggest worries facing homeowners in financial difficulty is the thought of losing their home, and this is especially true given the current economic climate."
Bad news again on Tuesday, as the FTSE 100 and Dow Jones Industrial Average Indices plunged, and Sterling suffered its largest one day fall against a basket of major currencies since so-called "Black Wednesday", 1992 when the United Kingdom was forced to withdraw from the European Exchange Rate Mechanism at an estimated cost of over £ billion. Sterling fell by 3.5% against the US Dollar, and the FTSE 100 suffered a further 0.8% fall which in combination with the fall on Monday wiped out roughly half of last week's gains. Bad news too, for Tesco which announced that its growth rate slowed to 2% in the third quarter of 2008, compared with 4% in the previous quarter and 4.8% with the same period last year. This represents the slowest rate of growth since the early Nineties.
On Wednesday, the Queen's Speech revealed that the Labour government is to introduce a banking bill – which will effectively make the current voluntary "Banking Code" legally binding – for the protection of depositors, along with further measures to aid homeowners and small businesses. According to the Google News website, the Queen told the House of Lords, "My government's overriding priority is to secure the stability of the British economy during the global economic downturn." Banks, for example will face considerable fines for treating their customers unfairly and small businesses will be protected against funding shortages caused by changing terms and conditions for overdrafts and loans. The measures follow concerns that despite the existing voluntary guidelines some bank are behaving unethically in the aftermath of the credit crunch. By way of timely coincidence, Lloyds TSB and HBOS – which are in the process of merging to form a new combined group Lloyds Banking Group plc, at a cost of £17 billion to the British taxpayer – both announced packages to help small businesses. A new Lloyds TSB business charter includes a guarantee that any future cuts in interest rates will be passed on, in full to business customers with annual turnover below £1 million, while Bank of Scotland has requested £250 million from the European Investment Bank to subsidise loans for small business.
The major financial news of the week came on Thursday, with the announcement that the Bank of England's Monetary Policy Committee had decided to cut the base lending rate by a full percentage point, from 3% to 2%. Halving the cost of borrowing since early October, and taking the base rate to its lowest level for more than 50 years. Speculation was rife however, that the cut would not be passed on in full to borrowers with Halifax – the largest mortgage lender in Britain – for example, stating that it would pass on only ¼%. Halifax did make a further statement later in the day, however, revealing that it would be passing on the full 1% cut to its tracker mortgage customers. This helped to ease pressure from the Prime Minister the Chancellor, Members of Parliament and elsewhere on Halifax with regard to passing on the cut – particularly in light of the £11.5 billion that it has received from the government – but on Friday, it was revealed that of the eight largest banks in Britain, only three intend to pass on the full 1% cut. The Nationwide – Britain's biggest building society – for example, promised only a 2/3% cut in interest rates for it mortgage borrowers, while it was revealed that 14% of Halifax customers would miss out on savings on their current mortgage product.
Oil prices also remained below $44 a barrel on Friday – their lowest level for nearly four years – having lost 20% in a week. The outlook for oil prices remains bleak, with lower retail sales high unemployment and poor economic figures in the United States indicating a major reduction in the demand for oil, and some analysts suggesting that the price may crash through the $40 a barrel barrier – important psychologically, as well as economically – to as low as $25 a barrel, ultimately. The slump in oil prices, accompanied by plummeting oil company share prices – the largest oilfield service company, Schlumberger issued a profit warning on Wednesday, which saw 12% off its share price – may set the stage for mergers and acquisitions within the oil industry; the last time oil prices slumped, in the late Nineties, the mergers between Exxon and Mobil, and BP and Amoco resulted, and the scenario may soon be similar, with well capitalised companies seeking to bolster their reserves, under favourable market conditions.