Saturday, December 5, 2009

Tiger Woods tries to repair damage to his marriage, and his golf brand




In a lakeside Florida mansion, marriage counsellors, lawyers and public relations advisers are engaged in a bizarre and expensive round of shuttle diplomacy between the world's richest athlete and his furious wife.

For Tiger Woods, a control freak accustomed to calling the shots both on the fairway and in his private life, the unravelling of an image as carefully manicured as a country club green is both agonising and self-inflicted.

The scandal of his philandering is so damaging to his "Mr Clean" brand that the publicity-averse superstar is even considering an invitation to appear on the sofa of talk show queen Oprah Winfrey, The Sunday Telegraph has learnt.

For that interview to work, quite possibly with Elin Nordegren, 29, the wife on whom he cheated, by his side, Woods, 33, would have to engage in the sort of public confessional that has previously been anathema to him.

His minders have not granted such access since a 1997 interview with the men's magazine GQ backfired badly when the young sportsman was quoted telling dirty and racial jokes.

That profile also hinted that when he was not playing the fairways, he was playing the field from what some in the sport call the real PGA - the "Party Groupie Association" (rather than the Professional Golfers' Association).



read more..

Dubai is in a 'nasty mess of its own making' – but so are we

Dubai has already given the world some of its biggest buildings (see below) and biggest indoor ski slope, says Alistair Osborne in The Daily Telegraph. Now it has produced "the biggest debt-market cock-up".




Last Wednesday, the Emirate's government suddenly asked creditors of Dubai World, a large state-sponsored conglomerate with $60bn of obligations, to agree to a standstill on debt repayments until next June at the earliest. This included the $3.5bn Islamic bond issued by the group's Nakheel property subsidiary – the company behind the palm island land reclamation project – and due to be repaid in mid-December. Then it shut up shop for a four-day Islamic holiday.
Dubai shocks the markets

The announcement left investors feeling "wronged and wrong-footed", says The Economist. Only three weeks before the government had insisted it would meet all current and future obligations on its $80bn or so of debt (although some analysts reckon about the same sum is hidden off balance sheet).

read more

Tuesday, December 1, 2009

U.A.E. Leaders Try to Ease Concerns Over Dubai


By MARIA ABI HABIB And MIRNA SLEIMAN

DUBAI--The leadership of the United Arab Emirates tried Tuesday to steady the nerves of investors after concerns over Dubai's debt crisis sent stock markets across the Gulf sharply lower for a second day.

In a public statement, Dubai's ruler stressed federal unity across the U.A.E. amid concern that oil-rich Abu Dhabi will remain on the sidelines as it struggles to restructure the debts of its government-owned companies.

The country is working on "enhancing integration between the federal and local frameworks," said Sheik Mohammed bin Rashid Al Maktoum, who is also Prime Minister of the U.A.E.

read more...

In Dubai, refusal amid market selloff


An eerie calm engulfed Dubai's financial centre, even as the city-state's two stock exchanges and another down the road in Abu Dhabi took a hammering.

Investors rushed to unload shares of several corporations expected to bear the brunt of a sharp downturn in Dubai's economy, the result of the announcement last week that the powerful holding company Dubai World needs a break from making payments on its $59-billion (U.S.) in debts.

Abu Dhabi's market was down a record 8.3 per cent Monday, and the Dubai Financial Market fell 7.3 per cent, with several banks, transportation and construction firms at or near the daily allowable loss of 10 per cent. Over at the more modern Nasdaq Dubai, DP World, a major subsidiary of Dubai World and one of the few subsidiaries listed on an exchange, lost 14.88 per cent of its value, hovering all day just above the exchange's 15-per-cent loss limit per day.

Global markets have been gyrating wildly since Dubai World first announced plans for a debt standstill last Wednesday, just before holidays began. Emerging markets and Asia were hard hit last week, but largely bounced back Monday as investors hoped Dubai's problems would remain largely contained.

In Dubai, government and private offices had almost all been given a 10-day holiday with the religious festival of Eid al Adha, ending later this week with the celebration of the United Arab Emirates independence day.

Eid al Adha commemorates the sacrifice the patriarch Abraham was about to make of his son Ishmael. This year, however, the holiday might also be said to mark the sacrifice of those holding stocks in vulnerable Dubai companies.

Together, the Dubai and Abu Dhabi markets shed about $10-billion in capitalization yesterday. They would have shed more, but for the exchanges' strict limits. In both cities, there were many orders to sell; almost none to buy...read more

Sunday, June 21, 2009

Households in UK better off than a year ago: Ernst & Young news

According to an Ernst & Young survey, families in UK that have not been affected by job losses have enjoyed a 25 per cent increase in spending money over the past year after mortgage costs and energy bills dropped.

The average UK household income of families that did not suffer job losses rose by £200 a month, the business consulting firm says in a report. Homeowners benefited with the Bank of England cutting the key rate to a record low level of 0.5 per cent that helped curb mortgage costs. Gasoline, gas and electricity bills also fell sharply it says.

Rising unemployment and the worst recession in a generation will likely encourage people to pay back their debt as they cut spending from their disposable wealth in the shops according to the report. Meanwhile, according to the Office for National Statistics UK retail sales for May have unexpectedly dropped for the first time in three months.

The average UK household has a higher percentage of its gross income left after paying bills as compared with last year. The £1,075 that the household has left to spend after paying bills amounts to 27 per cent of gross income as compared with 22 per cent last year.

Unemployment is at the highest since 1996 in the quarter through April and the Confederation of British Industry has predicted the up to 3 million consumers would likely be out of work by middle 2010.

Sir Fred might have gone away, but the issue of bankers' bonuses sticks with us

The timing of Sir Fred Goodwin's decision to hand back some of his pension is fascinating. Why now, when the furore over his gilt-edged retirement fund had more or less died down?

The official reason was that he was waiting for the results of an internal inquiry into his conduct and his expenses. Having been completely exonerated of expenses misdemeanours, despite his use of the company jet and his suite at the Savoy - which puts him one up on hundreds of MPs - he decided to do a deal. It means that his gesture cannot be interpreted as an admission of guilt, but being given the all-clear after an exhaustive investigation might just as easily have bolstered his earlier insistence on not handing a penny back.

He may have been daunted by the prospect of being sued by RBS, though the bank had little chance of winning a case, fighting a legal action would still have been expensive and bruising for him and his family. Presumably Fred would like to be able to come back to Scotland without being lynched, though exile in the South of France, where he was discovered by the News of the World last weekend, does not sound so bad compared with, say, the banishment of former Yukos oil executive Mikhail Khodorkovsky to a Siberian jail after he upset Vladimir Putin.

Perhaps a more pertinent question is why winning the Battle of Fred's Pension was so important to RBS, or rather to UK Financial Investments Ltd (UKFI), the body set up by the government last November to run its bank shareholdings, which has been pulling the strings.

One reason is that pay and bonuses will be a hugely sensitive issue from now on. As a major shareholder with a public mission, UKFI has a responsibility to make sure the banks are better run, that their capital bases are rebuilt, their risk management is far more prudent, their boards are restocked and that pay and bonus structures are far more intelligent. At the same time, the scale of its task in extricating the British taxpayer is enormous; the exit process from the broken banks will be bigger than all the 1980s and 1990s privatisation programmes put together. At its peak, RBS's balance sheet, courtesy of Fred, was bigger than Britain's.

So if RBS's new chief executive, Stephen Hester, and his counterpart at Lloyds Banking Group, Eric Daniels, are to get us out of this mess, then UKFI reckons they deserve to be paid a lot of money. It has been in talks with RBS about a new bonus scheme for Hester, which is expected to be announced shortly. Having the issue of Goodwin's pension still festering would have been unhelpful, to say the least.

If Hester and Daniels do achieve a profitable exit for the taxpayer, they will deserve our gratitude, but it still feels jarring to be dangling super-sized rewards in front of them, even if they are payments for success; as taxpayers, most of us want a new kind of banking, so why endorse old-style rewards?

The cultural problem for the finance industry is that bloated bonus structures proved to be a lure not for the most talented but for the greediest. One senior director aptly calls pay-obsessed investment bankers the "compensation Taliban". There seems little chance of changing that ethos if there are no public-spirited bankers out there who can be persuaded to save Britain's financial sector without further enormous and unnecessary self-enrichment.

The task of reining in pay is made harder by the fact we see Goldman Sachs resurgent; it and the likes of JP Morgan Chase could see a further concentration of power and wealth in their hands now that the competition has been felled.

Bankers' pay is a problem in itself, but it is also a symptom of an underlying issue about ownership. We can have boardroom rejigs, or beefed-up regulation, but the missing link is much more activist owners, who hold companies and their executives to account.

Extravagant pay awards were one sign that the short-term interests of senior executives took precedence over those of long-term owners; UKFI is in a powerful position to reverse that by making sure that new structures are proportionate and that directors' and owners' interests are wholly aligned.

Big banking bonuses were also a sign that the sector had become far too large and powerful. As Bank of England governor Mervyn King said at the Mansion House last week, it is not sensible to allow large banks to combine high-street operations with risky investment banking or funding strategies, and then provide state underwriting: if banks are too big to fail, then they are too big.

The way that New Labour, with its sucking-up to the City and neglect of manufacturing, allowed our economy to become so unbalanced has put us in peril: the size of our banking sector in relation to GDP is five times that in the US, so the risks to taxpayers are correspondingly greater. Thanks to the bankers, in five years, our national debt will be more than double its level before the crisis.

Were they worth it? Most taxpayers, I suspect, think not. Banks - and bankers - still need to be cut down to size.

-Ruth Sunderland, The Observer-

Saturday, June 6, 2009

Iceland to repay UK depositors

Britain has secured agreement from the Icelandic authorities to repay the £2.3 billion paid out by the Government in compensation to UK depositors in the failed Icesave bank, the Treasury said.
Under the terms of the agreement, the money paid out by the Government will be treated as a loan to the Icelandic Financial Compensation Scheme which will be repaid over 15 years.

The deal was announced in a joint statement by the governments of Iceland, Britain and the Netherlands which has struck a similar agreement with the authorities in Reykjavik.

There will be an initial seven year "period of grace" in which payments will be made only from the UK assets of the Icesave's parent bank, Landsbanki, which the Government froze following the collapse of the Icelandic banks last October.

A Treasury spokesman said that the agreement was "good news" for both Britain and Iceland.

"The Government welcomes Iceland's commitment to recognise its obligations under the EC Deposit Guarantee Scheme to repay depositors in Icesave," the spokesman said.

"The actions we took in October last year following the collapse of Landsbanki protected UK financial stability and ensured that no UK retail depositor lost any money.

"Today's announcement is a positive step forward for relations between our countries. It will ensure the taxpayers interests are protected and that the Icelandic economy can continue in its recovery after very difficult times."

Friday, June 5, 2009

U.K. House Prices Reverse Decline

LONDON -- U.K. house prices posted their strongest monthly rise in six and a half years in May and there are indications activity in the residential property market may be stabilizing, mortgage lender Halifax said Thursday.

House prices rose 2.6% from April, the strongest gain since October 2002, but were still 16.3% below year-earlier levels, Halifax said. In April prices dropped 1.7% from March and 17.7% from a year earlier, Halifax -- which is owned by the Lloyds Banking Group PLC -- said. Economists were expecting a monthly decline of 0.6% and an annual drop of 17.2%.

The gain in the house-price indicator helped boost the pound against the dollar and weaken gilt prices as the market waited for a Bank of England policy decision later Thursday. The bank's Monetary Policy Committee is expected to leave interest rates unchanged at 0.5%.

"This latest Halifax reading is not an isolated case. There are clear signs emerging that the U.K. housing market has turned the corner," Alan Clarke, an economist at BNP Paribas, said in a note.

The positive data chime with other indicators that suggest the downturn in the U.K.'s housing market is beginning to bottom out after sharp drops in prices and interest rates. Nevertheless, with unemployment rising sharply, the outlook for demand and prices remains very uncertain.

"There are some tentative indications of a possible stabilization in activity, albeit at a low level," Nitesh Patel, housing economist at Halifax, said in a statement.

Last week, the Nationwide Building Society said house prices rose 1.2% in May, the strongest monthly gain by that measure in 19 months, although they remained 11.3% below their year-earlier level. The Royal Institution of Chartered Surveyors has also reported that increased buyer interest over the past six months is beginning to lead to an increase in sales.

Even though Mr. Patel noted that Bank of England data had shown that mortgage approvals, a good indicator of market activity, were 19% higher in the first quarter of the year than in the final three months of 2008, he cautioned against reading too much into one month's figures.

"House sales remain substantially below their long-term average and market conditions are expected to remain difficult, with housing activity continuing at low levels over the coming months," he said.

Lloyds has confirmed it is cutting 500 jobs from its retail banking division.

Many of the jobs will go from Chatham in Kent, which will see 210 positions cut with the closing of a processing centre.

Positions will also be axed in London and Birmingham.

The cuts will hit staff in regulated sales, mortgages and network support and will take effect by the end of the year.

"The Group's preference is to use natural turnover and to redeploy people wherever possible so it retains their expertise and knowledge within the Group," a Lloyds spokesman said.

The union Accord, which represents former HBOS workers at Lloyds, said staff should be offered the chance of redeployment within the company.

Unite said it was opposed to the Kent closure, adding that Lloyds had now cut almost 3,000 jobs this year.

National officer Rob MacGregor said: "Unite is extremely disappointed that the Lloyds Banking Group is to cut a further 510 roles.

"We have already seen over 2,400 job losses announced by the bank since its formation in January.

"Unite has made it plain that the union will not accept a situation where the LBG makes weekly announcements of hundreds of job losses.

"Staff must be told the company's plans for the future of the organisation and not be left with the uncertainty that they could be the next to lose their jobs."

Lloyds shareholders get their chance to question the direction of the bank at the company's AGM later this week.

The prospect of a rebellion, though, has receded since the body that manages the government's stake in Lloyds, UKFI, announced it would use its votes to back the board.

Saturday, May 30, 2009

UK commercial property: The banking sector albatross


LONDON (Reuters) - Europe's banks are ready to pull the plug on faltering UK commercial mortgages to limit losses on a 225 billion pound loan book in a bid to prevent a dramatic next turn of the banking crisis.

More than 10 billion pounds of commercial mortgages have so far breached their terms, a recent study shows, and banks are running out of patience with problem borrowers.

"Compared to a couple of months ago, there are clear signs the banks are becoming more organised as to how they approach their commercial property exposures," said Mark Creamer at real estate consultants CB Richard Ellis (CBG.N).

"Instead of working on no-hope situations, banks will get rid of those and move onto properties where they have a real prospect of getting their money back," Creamer said.

In 2009 alone, 43 billion pounds of property loans mature, according to the De Montfort University study, posing a much larger risk than commercial mortgage-backed securities CMBS.L, which have largely been sold on.

Lenders have long turned a blind eye to borrowers in breach of covenants -- when the value of a property drops too low relative to the size of the loan -- as long as they met interest demands by collecting rents.

But they are now abandoning this softly-softly approach as the British economy worsens, planning foreclosures on a scale not yet seen in this cycle.

Industrial landlord Brixton (BXTN.L) and FTSE 100 heavyweight Land Securities (LAND.L) are two of many UK landlords sweating over possible loan-to-value covenant breaches.

"At the moment, banks are big hostages to fortune," said Solly Benaim, head of real estate and construction at restructuring firm BDO Stoy Hayward.

"It is unrealistic for some of them to hope that this laissez-faire approach will carry them safely through the downturn, a certain number of repossessions need to happen to truly rehabilitate the market," he said.

Banks including Lloyds Banking Group (LLOY.L) unit Bank of Scotland, HSBC (HSBA.L), Commerzbank (CBKG.DE) unit Eurohypo and Royal Bank of Scotland (RBS.L) lent vast amounts to the British property sector during the boom years.

While some of this was parcelled out to bondholders via commercial mortgage backed securities CMBS.L, much of it remains on their balance sheets.

GRIM OUTLOOK

Average UK commercial property values have tanked 43 percent since peaking in June 2007 and the worst may not be over. Rents are in freefall, compromising cash flows and putting landlords' ability to pay interest on their debts in jeopardy.

First-quarter data from business rescue specialist Begbies Traynor showed an 87 percent year-on-year increase in the number of UK companies with critical financial problems.

"Commercial property will be a huge burden on the UK banking sector. Unless there is a bottoming-out of banks' exposure to sector, no-one will start lending again," said Gareth Davies, a restructuring expert at Close Brothers.

Until now, banks have only repossessed as a last resort because they feared they would be unable to sell assets in the debt-starved investment market.

But a flurry of fund launches and opportunistic rights issues has ratcheted up competition among buyers in the sector, stoking hopes for less costly exits.

They have already hired hundreds of workout specialists, many of which used to originate loans.

Leading property lenders HSBC, Lloyds Banking Group and Royal Bank of Scotland declined to comment on their strategies.

A wave of repossessions is likely to begin once banks know what they can offload into the UK Asset Insurance Scheme, details of which are due to be announced in July, said David Swan, managing director of real estate advisor WW Advisors.

"Banks know they cannot possibly hope to re-emerge from the most intense UK commercial property downturn in generations without any blood-letting in their loan portfolios," he said.

A key economist at the Federal Reserve on Friday expressed confidence that U.S. banks can survive similar default pressures on their $1.3 trillion (804 billion pounds) commercial mortgage and bank portfolio loan book.

Banks maintained some CMBS debt on their balance sheets, though Barclays Capital estimates that it totals less than 10 billion euros (8.7 billion pounds) across Europe, a fraction of the amount of their non-securitised property lending.

And only 12 billion pounds of CMBS secured by UK properties will mature before the end of 2011, giving time for values to recover, according to data from ratings agency Standard & Poors.

Still, investors in CMBS -- largely pension funds and insurers -- face years of uncertainty over their commercial property exposures. The market is dominated by intercreditor fights and complex funding structures that have never been tested," Close Brothers' Davies said.

Saturday, May 16, 2009

Bonus Pay, Lax Oversight Led to Bank Crisis, U.K. Lawmakers Say

By Gonzalo Vina

May 15 (Bloomberg) -- British bankers are guilty of self- pity and Treasury minister Paul Myners displayed naivete over the pension awarded to the former chief executive officer of Royal Bank of Scotland Group Plc, a panel of lawmakers said.

Feeble oversight by regulators allowed executives at RBS and Lloyds Banking Group Plc to bring the banking system close to collapse in October, Parliament’s Treasury Committee said today in a report that calls for sweeping changes to the way financial firms compensate workers.

“Bonus-driven remuneration led to a lethal combination of reckless and excessive risk-taking,” said John McFall, a lawmaker from the ruling Labour Party who leads the committee. “The design of bonus schemes was not aligned with the interests of shareholders and the long-term sustainability of the banks.”

The report is aimed at influencing Prime Minister Gordon Brown and officials at the Financial Services Authority and Bank of England as they tighten up bank regulation to prevent a repeat of the crisis that froze credit markets and plunged the economy into its worst recession since World War II.

The Treasury Committee, drawn from each of the three main political parties, took aim at the culture in the City of London that allowed bankers to award Fred Goodwin, the then chief executive of RBS, a 3 million-pound ($4.5 million) payout as taxpayers took on liabilities of 1.4 trillion pounds for bailing out the banking system. It will next turn its fire on regulators in a report due by July.

Lawmakers expressed frustration that bankers testifying to the panel “betrayed a degree of self-pity, portraying themselves as the unlucky victims of external circumstances,” according to a statement accompanying the 120-page report.

Insufficient Priority

FSA Chairman Adair Turner in March proposed an overhaul of the regulatory system and changes to bonus payments. The Treasury Committee said the FSA hasn’t given bonuses “sufficient priority” and called for rules forcing banks to disclose such payments below board level, for remuneration committees to be more open and for a code of ethics for pay consultants.

Turner has said that the last 12 years of “light touch” regulation under Labour helped trigger the financial crisis. The FSA said bonuses should not be a high multiple of salary and should be based on profit, not revenue, of a bank.

Chancellor of the Exchequer Alistair Darling is studying proposals to overhaul supervision and will put out his recommendations by the time Parliament begins its summer recess on July 21.

‘Naivete’

The Treasury Committee said Myners didn’t do enough to limit payouts to Goodwin, noting that he could have asked for the executive to be fired instead of merely telling the RBS board that it should not “reward failure.”

Myners has said he didn’t know Goodwin’s payout could have been withheld. The government had no legal right to intervene in the negotiations between the RBS board and Goodwin about the terms of his departure, a Treasury official said in response to the report.

The report pointed to Myners’s “City background” and his “naivete as to the public perception of these matters” for placing too much trust in the former RBS board.

“We were given two accounts of what happened, and we just didn’t trust Myners,” said Michael Fallon, a Conservative lawmaker who serves on the committee. John Thurso, a Liberal Democrat, said that Goodwin “didn’t come out of this covered in any glory.”

As for the executives at RBS and HBOS Plc, the bank absorbed by Lloyds in a government-brokered deal, lawmakers said their apologies had a “polished and practiced air,” betraying an air of “self pity.”

Management Failure

The government, which also nationalized Northern Rock Plc and Bradford & Bingley Plc last year, boosted its share in RBS to as much as 84 percent and has 43 percent of Lloyds. Bankers deserve “a large share of the blame” for the crisis, the panel said.

“The charge of management failure is impossible to resist,” McFall said. “The banks that have failed did so because those leading and managing them failed.”

Non-executive directors were also to blame for their lack of oversight. Many of them lacked the right skills and were spread too thinly by taking on too many jobs. Committee members urged banks to look to a “broader talent pool,” cap the number of posts any one director can hold and communicate better with shareholders.

Shareholders should take a more active role in scrutinizing their investments to prevent banks from operating “outside the bounds of accountability,” the committee said. Auditors should be banned from doing non-audit work for banks and the FSA needs to improve the clarity of financial reports, it said.

The British Bankers’ Association urged the authorities to show restraint when drawing up new rules for the industry.

“Other countries are watching us, and none uses quite such pejorative language in its scrutiny of financial institutions,” Chief Executive Angela Knight said in a statement. “Our financial services sector is a significant employer which pays significant taxes: we do not want to lose it to a competitor.”

Friday, March 27, 2009

UK rejects calls to cap executive pay

Australian Associated Press | AAP

Britain's Treasury chief Alistair Darling rejected calls to cap the pay of executives in banks that were part of the government's multi-billion pound (dollar) bailout package, arguing that Britain has already done more than the United States to curb excessive bonuses.

As angry US lawmakers prepared to levy heavy taxes on employee bonuses at insurance giant American International Group Inc. and at other companies that received bailout money, Darling said it was essential that the banks were able to retain key staff for the government to eventually return them to the private sector.

"We have ... got to make sure that we don't end up with a situation where other banks start attracting people who are key to making, say, RBS and the Lloyds Group work in the future," he told lawmakers, referring to the banks that have received substantial government funds.

"Whatever we do, we've got to manage these banks in such a way that we can get them back into the commercial sector," he added. "I don't think anyone wishes us to be running banks for ever and a day."

However, he acknowledged that it will be "tough" to return nationalised and part-nationalised banks to the private sector.

"I think we are going to have these banks for a while yet," he said during questioning by the cross-party Treasury committee. "It will take time to work through. There is no quick fix on this."

In the U.S., the Democrat-led House voted for a bill to slap punishing taxes on big employee bonuses from AIG and other firms bailed out by taxpayers.

Britain's own banking bailout has come under fire after it was revealed that former RBS Chief Executive Fred Goodwin, who many analysts blame for overextending the bank, will receive a STG16.9 million ($A35.49 million) pension pot.

Darling stressed that bankers' pay will be subject to an imposed code in the future.

A government-commissioned report by Britain's financial services regulator released on Wednesday which proposed sweeping changes to the way banks are regulated recommended that remuneration policies be designed to discourage bankers from "taking excessive risks with other people's money."

Darling, who is due to present the country's annual budget next month, added that it was positive that excesses in the banking sector were brought to an end, but noted that government revenues from taxes will suffer as a result.

Darling said he remained upbeat about the longer term prospects for the British economy.

"We are facing a very, very turbulent period," he said. "But if you look at the position at the moment, provided we maintain our support for the economy and provided too we make it clear that in the medium term all countries have to live within their means, I believe we can get through this."

Barclays master of its destiny as John Varley’s gamble pays off

By Philip Aldrick
Last Updated: 9:24PM GMT 27 Mar 2009

John Varley, Barclays chief executive, should put away his beloved table tennis bat and take up poker.

No UK bank has played a more high-risk game during the financial crisis and Mr Varley has cleaned up. The Financial Services Authority's (FSA) decision on Friday to green-light the lender's capital levels was the banking equivalent to a royal flush. Mr Varley's gamble has paid off.

Barclays is now the master of its own destiny. Unlike Royal Bank of Scotland and Lloyds Banking Group, it will only participate in the Government's toxic debt insurance scheme if the price suits. There will be no B-share issue and no state ownership. As Mr Varley said when he turned down the offer of state capital last October: "We want to protect the right of self-determination." For Britain's embarrassed financial sector, it is a fig leaf of sorts.

It is an outcome few expected as recently as January. The shares hit a low of 47.3p that month and the credibility of the management appeared sunk when the markets ignored mollifying comments from the board. Sceptics said Barclays was simply hoping "to trade through the crisis" by denying what many analysts reckoned was a massive capital shortfall and by adopting questionable accounting procedures that concealed all sorts of toxic sub-prime losses.

Barclays also tore up the rule book on rights issues, going last – after the equity markets had been drained by RBS and HBOS – and angering shareholders by taking money from Middle Eastern governments rather than its own. By contrast, RBS chief executive Sir Fred Goodwin played a straight hand. He adopted conservative accounting practices and was the first out of the blocks with a £12bn fundraising last April. Sir Fred is now public enemy number one and Mr Varley the respectable face of UK banking. As a bluff, there has rarely been one better.

Barclays was not just bluffing, of course. Mr Varley knew he held some strong cards while RBS always had a dead hand. Barclays' big risks are in its investment banking business Barclays Capital, where it took £8bn of gross writedowns in 2008, but its UK arm is relatively robust. RBS and HBOS, now owned by Lloyds, have been crushed in the vice of collapsing credit markets and UK bad debt.

To assess the banks' financial strength, the FSA stress-tested their capital against a UK recession deeper and longer than the 1980s. According to sources, it assumed a near-halving in house prices and over 5pc collapse in GDP from peak to trough. Under such a scenario, the asset classes that suffered most were commercial property and housing. Both RBS and Lloyds, following its acquisition of HBOS, had that in droves.

At Lloyds, lending to property companies totals £89bn and at RBS £62bn, but at Barclays just £5bn. Barclays' mortgage book is also better-looking. Some 16pc of Lloyds' home loans are in negative equity while only 6pc of Barclays' mortgages have a loan-to-value of more than 90pc. The FSA's stress-test played to Barclays' strength because it is less exposed to a downturn in the real economy.

At the same time, state bail-outs came to the rescue of Barclays' credit market assets. The aggressive accounting treatment Barclays took on its leveraged loan portfolio, which allowed it to avoid billions in potential writedowns, was standardised by regulators – vindicating Mr Varley's bold decision and punishing those who had been more prudent. Britain's toxic debt insurance scheme and its US version, the $1 trillion Term Asset-Backed Securities Loan Facility, have since put a floor under falling asset prices.

Concerns about certain credit market exposures remain, but the FSA has deemed that Barclays 6.7pc core tier one capital is enough to meet the FSA's new recommendations that the ratio be above 4pc at the bottom of the cycle. According to analysts, the lender has room to absorb £17bn of losses. "I think there will be more asset market writedowns but they will be lower than last year," Ian Gordon, banks analyst at Exane BNP Paribas, said.

At the same time, Barclays is rebuilding capital internally. The planned sale of its exchange-traded funds business i-Shares is expected to raise £3bn-£4bn of capital and, unlike RBS and Lloyds, the bank is forecast to be profitable this year, generating even more.

There are other ways of improving the bank's financial strength. Lloyds and RBS are currently offering to buy back their own debt from bondholders at a fraction of the issue price but a premium to the distressed levels at which it is trading in the market. If Barclays were to follow suit and exchange £10bn for new unsecured senior debt the deal would improve its core tier one ratio by about £2.5bn, Credit Suisse estimates.

Barclays share price surge on Friday said it all. At 173.8p, up 24pc, the stock has more than trebled in two months. It may yet choose to insure a couple of asset portfolios with the Government or even hold on and raise capital in the markets later this year. Either way, Mr Varley has swept the chips from the table. That's got to be a lot more rewarding than ping-pong.

Wednesday, March 18, 2009

UK recession will drag into 2010 as others recover, says IMF

Gary Duncan, Economics Editor

Britain’s economy is set to keep shrinking well into next year, even after all or most of its leading competitors have begun to enjoy renewed growth, the International Monetary Fund will warn this week.

In a severe blow to Gordon Brown’s hopes for an economic revival to take hold by Christmas, the IMF will predict that the UK economy will shrink in 2010 by a further 0.2 per cent.

It now expects that to come on the heels of a brutal 3.8 per cent contraction this year that would be the sharpest since 1944 — and much worse than the 2.8 per cent that the fund forecast only in January.

The new, even harsher forecast comes ahead of official unemployment figures today that are set to show that numbers out of work soared above 2 million during January.
Mervyn King, the Governor of the Bank of England, last night warned of the danger of a return to an era of mass joblessness.

Speaking to bankers at the Mansion House in London, he highlighted the “extraordinarily sudden, severe, and simultaneous downturn of activity and trade in every corner of the world economy” since last autumn.

“Most of us have come from the generation that grew up believing that mass unemployment and world recession were things of the past, relevant to the history books but not the textbooks ... That assumption is under threat,” he said.

The leaked IMF projections, outlined by a top adviser to Dominique Strauss-Kahn, the IMF’s managing director, will be greeted with consternation in Number 10 and the Treasury.

Government alarm will be heightened as the leak indicated that Britain is likely to be shown as the only leading economy not tipped to stage a recovery from recession next year.

The IMF is expected to project that while Britain’s GDP will keep falling over 2010 as a whole, the US economy will grow by 0.2 per cent, the 16-nation eurozone will eke out modest gains of 0.1 per cent, and the Group of Seven (G7) leading industrial economies will, as a whole, also grow by 0.2 per cent. The leaked forecast showed that Japan’s economy expected to stagnate during next year.

The scale of the toll from the global recession was underlined by the leaked details of the fund’s forecast, which officials in Washington said are set be further amended before release.

The updated projections show that the IMF now expects the world economy to suffer an outright contraction of 0.6 per cent this year, making this the bleakest since the Second World War. Britain is set to bear much of the brunt, with its economy now tipped to shrink by 3.8 per cent over 2009. That compares with predicted contractions of 2.6 per cent in the United States, 3.2 per cent in the eurozone, 5.0 per cent in Japan, and 3.2 per cent for the G7.

“This is a true global crisis, impacting all parts of the world,” Teresa Ter-Minassian, Mr Strauss-Kahn’s adviser, who outlined the new forecasts, said.

Mr King insisted that the Bank had taken drastic action to counter the impact of the crisis. “In its entire history, the Bank has never acted so swiftly or extensively in response to an economic downturn,” he said.

But he called for the Group of 20 key economies to agree decisive new measures at their London summit next month. He warned of a danger that, without collective commitments, countries could fail to factor in big gains from joint action, and so adopt an “excessively cautious approach”.

Mr King said that in the build-up to the present crisis, all forms of regulation, both light-touch and heavy-handed, had failed. Any overhaul of regulation faced the problem that “it is unlikely that there is a simple answer”. “We should not expect too much of regulation,” he argued.

The Governor said a new regime should “aim to be simple and robust” and avoid overly complex rules that would leave those in charge “lost in a morass or unnecessary detail”.

“We need to build into the system some simple and robust impediments to excessive risk-taking ...” he said.

Condemning a huge build-up of leverage in British banks before the crisis that saw them lend more and more against ever less capital, Mr King backed expected moves for banks to be forced to build-up a safety margin of capital in good times to cushion them in tougher periods.

Enormous risks had been allowed to pile up in banks before the present crisis, the Governor said. He blamed this on a “massive increase in complexity” of financial products, and skewed incentives that had encouraged a lax attitude to the dangers.

“Banks felt that they had to keep on dancing while the music was playing,” he noted.

In future, banks should be forced “to bear the true cost of the risks they take”, he added.

Saturday, March 14, 2009

Banking IT budgets plunge by $40bn

By Jo Best

IT is set to feel the brunt of hard times hitting the financial services industry - according to new research, tech budgets in the global retail banking sector could be slashed by billions.

The picture is especially bleak in the UK, where banking IT budgets will fall by seven per cent year on year in 2009, compared to a fall of two per cent worldwide, a report by Datamonitor predicts.

The fall could result in $40bn being wiped off projected IT budgets over the next five years, according to the research company.

While the first green shoots are expected to appear for banking IT at some point in 2010, Datamonitor expects spending to remain flat until 2012.

Some areas of spending will defy financial services' spending crunch: in-branch tech will remain resilient as banks attempt to maintain service levels following job cuts.

Outsourcing and hardware should also bear up, according to the report.

"IT outsourcing spend will be more resilient in the short term, as banks are tied to longer term deals. In the medium term, there will also be a pick-up in spend as banks adopt broader sourcing strategies, with IT outsourcing as part of business process outsourcing (BPO) deals likely to be a particular growth driver," it said.

Tuesday, February 3, 2009

Bank of England lent banks £185bn under Special Liquidity Scheme


By Heather Stewart

Britain's battered banks have borrowed a total of £185bn from the Bank of England in just nine months under the Special Liquidity Scheme, the emergency measure set up last April to relieve them of some of their toxic debts and unblock the credit markets.

The SLS, which was designed to remove the need for further bank bail-outs, allowed financial institutions to swap hard-to-value securities, including "toxic" mortgage-backed debt, for more liquid government bonds, over a term of up to three years.

Because taxpayers' money is at stake under the scheme, the Bank has demanded "haircuts", insisting that the 32 participating banks pledge securities worth considerably more than the gilts they received.

The SLS closed at the end of January, and in a statement published today, the Bank reported that, as a result, it is now sitting on a pile of securities with a face value of £287bn. Most of these are mortgage-backed securities, or residential mortgage covered bonds.

"The haircuts are designed to protect against the risk of loss in the event of a counterparty defaulting, and are therefore set taking into account uncertainty about possible valuations of the Bank's collateral, including in the event of default," the Bank said.

It estimates these securities are now worth £242bn; but the difficulty of valuing toxic debts has been at the heart of the credit crunch, and crisis-hit banks have been forced to take repeated writedowns over the past 12 months as they acknowledge that they are worth far less than first thought.

However, the Bank insists that if the value of assets continues to fall over the next two years, eroding its safety cushion, it will "call for margin" – demand that the participating banks hand over more securities.

The Bank will release more details this week of how it will spend a £50bn "asset purchase facility", a fund set up to buy corporate bonds and other assets, in yet another attempt to free up lending to firms, and drive down interest rates – and the first tentative step towards the radical measures known as "quantitative easing".

The Bank's monetary policy committee will gather on Thursday for its two-day meeting to set interest rates, and is widely expected to vote for another cut, taking borrowing costs below their current historic low of 1.5%.


TheGuardian.co.uk

Saturday, January 24, 2009

Levels of belonging 'lowest in UK'

Researchers said the UK's poor performance on the "key element of social well-being" was indicative of a "highly individualistic culture".

And the UK did not fare much better across the population as a whole, coming 20th when it came to levels of trust and well-being. Only Slovakia and Bulgaria were worse.

The report, by the independent think-tank the New Economics Foundation (nef), also found that the UK performed poorly on combined measures of social and personal well-being, coming 13th out of the 22 European nations surveyed.

The group called on European governments to adopt the National Accounts of Well-being - released for the first time today - as a way to improve public policy-making and said a nation's Gross Domestic Product (GDP), a measure of national income, "fails as a meaningful measure of social progress".

Nic Marks, founder of the group's Centre for Well-being, said: "It is clear that our obsession with GDP has failed to deliver better quality of life for all. We need a better compass to guide us."

He went on: "Governments have lost sight of the fact that their fundamental purpose is to improve the lives of their citizens. Instead they have become obsessed with maximising economic growth to the exclusion of other concerns, ignoring the impact that this has on people's well-being.

"The UK's long hours culture and record levels of personal debt, have squeezed out opportunities for individuals, families and communities to make choices and pursue activities that would best promote personal and social well-being."

Denmark, Switzerland and Norway showed the highest levels of overall well-being in the survey, while central and eastern European countries such as the Ukraine, Bulgaria and Hungary had the lowest.

A Communities and Local Government spokeswoman said: "We recognise that young people are a key part of society and play a crucial part in addressing issues facing their communities. That is why the Government is working hard to give younger people greater influence over the local decisions that affect them and more opportunities to get involved in their communities." http://www.neweconomics.org/gen/(New Economics Foundation)

What Mr Brown has to say about UK recession

Gordon Brown said today that the recession now gripping Britain was unlike any others since the Great Depression, caused not by domestic economic mismanagement but by a "complete market failure" set off by the sub-prime crisis in the United States.

As statisticians confirmed the UK's first recession since 1991 and the largest quarterly contraction in 28 years, Mr Brown - who spent ten years as Chancellor under Tony Blair before taking over as Prime Minister - said co-ordinated international action would be the key to lifing the global economy quickly out of the downturn.

And he insisted that he and his Chancellor, Alistair Darling, had had no choice but to commit billions of pounds of public money to shoring up the banking system because the "cost of inaction" would have been much greater.

"Every recession in the last 60 years in Britain has been caused by inflation, domestically generated, caused by wages getting out of control on some occasions, by interest rates having to rise," Mr Brown told BBC Radio 4's Today programme.