‘Recognising recession’

November 26, 2008 at 2:52 pm

The subject of global recession has become all too familiar during the month of November. Gordon Brown prepared the UK for this event back in October, stating that recession was "likely". Weeks later, with falling house prices and rising unemployment, the questions making the headlines each day centre on how deep this recession will be and how long it will last.

On the 17th of November, only two months after publishing its September predictions, the Confederation of British Industry (CBI) published a new set, which had a more serious message about the expected recession in Britain. The leading business group was forced to make drastic revisions to its September predictions after the rapid changes in the economic outlook following the collapse of Investment Bank, Lehman Brothers in October, as well as the subsequent upheaval in the financial sector.

The CBI’s predictions are an accurate indicator of the uncertain economic conditions as companies in the financial sector try to absorb the events of the past few weeks. In contrast to its previous prediction of a ‘short and shallow’ recession followed by 0.3% growth in 2009, the CBI now predicts a ‘tougher and longer’ recession, with 1.7% contraction in the UK economy in 2009, and slow recovery set to begin in 2010.

The dramatic cut in interest rates seen two weeks ago was aimed directly at reducing the effects of recession from the outset. It aimed to tempt consumers back to the market place in time for Christmas, and help businesses access capital to cover their running costs.

However, according to CBI deputy director general, John Cridland, there is still very little finance available to businesses: “it is unclear how the banks will be able to deliver for business over the next few months.”

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‘Citibank to shed 52,000 staff’

November 26, 2008 at 2:50 pm

Citibank, one of the largest consumer banking companies in the world, has announced that extensive redundancies are inevitable if the bank is to pull itself out of financial oblivion. 52,000 jobs are expected to face the axe if Citibank fails to procure enough funds to stem the flow of cash out of its vaults.

In April of last year, Citibank sent 17,000 people to the dole office in an effort to cut costs and to restructure the company as a whole. A further 23,000 workers received their marching orders at the beginning of 2008. The recent announcement, while not totally unexpected, may belie an increasingly dire situation that could topple the bank once and for all.

Experts maintain that Citibank is too big to collapse and a rescue package from the U.S. government will arrive in the coming weeks. The bank is haemorrhaging money, however, and any financial aid from the government’s pockets would be in the region of £13.3billion.

It is worth noting that HBOS, a British bank on the verge of collapse, has yet to find a white knight to burden with its substantial financial woes. Citibank is out of options: either the government offers to return the bank to a solvent position or the 300,000 people that remain on Citi’s books can kiss their jobs goodbye.

Many financial institutions are braced for another month of chaos. Goldman Sachs, the Royal Bank of Scotland, and JP Morgan are all expected to announce company-wide redundancies before the end of November. The 12,000 employees of Egg, a British subsidiary of Citibank, are also at risk of redundancy.

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‘HBOS rejects independent rescue plan’

November 17, 2008 at 2:55 pm

HBOS has rejected an alternative rescue plan made by two prominent Scottish bankers. The proposal would have allowed the bank to remain independent from the British Government and prevented Lloyds-TSB from assimilating HBOS shareholders. However, investors believe that the scheme, whilst audacious, has no long-term value.

Sir George Mathewson, the former chief executive of the Royal Bank of Scotland, and Sir Peter Burt, who once held the same position in the Bank of Scotland, were blasted for offering half-baked, “vague” ideas as an alternative to the impending Lloyds-TSB merger.

“They have failed to come up with any concrete proposals or any money. We have serious concerns that the extreme arrogance of these two individuals will lead to the nightmare scenario in which HBOS collapses.” These words were spoken yesterday by the British trade union, Unite.

HBOS shareholders are extremely angry but bank executives are continuing to search for a majority investor to prevent the nationalisation of the bank and to deflect fears of a complete crash should the Lloyds takeover fall through.

The Bank of China (BoC) joined the race for HBOS’ soul on Monday but experts believe that any intervention by the financial giant is unlikely given that the bail-out sum may top £15 billion if HBOS loses government backing.

The Prime Minister, Gordon Brown, has acknowledged that serious bidders – with enough capital to back up their proposals – are few and far between. Critics are sceptical, however, with some politicians believing that the Labour Government is becoming increasingly hostile towards potential bidders in an effort to push the Lloyds takeover through as quickly as possible.

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‘Interest rates to be passed on to customers’

November 14, 2008 at 10:03 am

In the wake of the 1.5% cut in the interest rate seen on the 6th of November, when rates reached their lowest since 1955, banks and mortgage lenders have been urged to pass on to their customers the benefits of lower base rates of interest.

Chancellor, Alistair Darling, sent the banks a clear message that at the onset of recession, it is essential that they play their part to encourage spending in the economy.

In October, the Bank of England cut interest rates from 5% to 4.5%, and November’s cut left the base rate at 3%. The majority of lenders in Britain have passed on some rate cuts to customers, since terms of mortgages and other products have permitted rate changes.

Against the background of the injection of £37 billion into Royal Bank of Scotland, HBOS, and Lloyds TSB in October, the pressure on banks to ‘do right’ by their customers has been substantial, and the falling Libor (the rate at which banks lend to each other) indicates that banks may have the ability to make further rate cuts available for their customers.

However, during a meeting at the Treasury on the 7th of November, representatives from the banks emphasised to Alistair Darling that they are “not charities”. They insisted that the 3% interest rate must be “a line in the sand”, and that any further rate cuts by the Bank of England cannot be passed on to customers.

Whilst a 0.5% interest rate cut by the European Central Bank on the 7th of November was met by swift agreement from banks in Ireland to pass on any savings to customers, Vince Cable of the Liberal Democrat party likened the British banks’ reluctance to cut rates any further to “hold[ing] the consumer to ransom”.

The interest rate cuts in October and November have been the largest the Bank of England has performed since it became independent in 1997. The cuts reflect the new emphasis that the banking crisis has demanded from central banks and their monetary policy, from controlling inflation to cushioning recession.

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‘Icesave payments to start this week’

November 12, 2008 at 2:47 pm

With Christmas just around the corner, British savers with the failed Icelandic bank, Icesave, will be relieved to know that they should not have to wait too much longer for their money to be repaid to them. Indeed the 230,000 UK customers, who between them have investments of £4.5 billion, should have their money by the end of November.

E-mails should have been sent out on November the 5th to all investors, explaining that the repayment process has started. A second e-mail should then follow in which savers are given instructions on how to claim their money. They will be able to log on to their accounts and will have one month in which to move their money online to an account of their choosing.

Any customers who have changed e-mail address since October the 7th will receive a letter in the post and the Financial Services Compensation Scheme, aware of the potential for fraudsters to take advantage of the current situation, have stressed that under no circumstances will they telephone people asking for details of their bank account.

Once investors have done their bit, the money will take five days to clear by BACS, meaning that some investors will have their money by the end of next week. E-mails are, however, being sent out in batches for logistical and security reasons and unfortunately there is no way to “fast-track”; savers must wait for the second e-mail to be issued before they can start the process of recovering their investment.

Anyone who experiences difficulty accessing the website or who disagrees with the balance shown can contact the FSCS on 020 7892 7300.

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