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."

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.