April’s fiscal stimulus is likely not about to happen following a budget deficit of 12.6% of GDP. This figure is far
higher than what was predicted by the Chancellor Alistair Darling. Darling announced that an 8% GDP rise in borrowing was expected over next year. This amounts to 118 billion pounds. As a result, the April budget will have to be upgraded. Public finances are deteriorating rapidly and eating up on tax revenues and the surge in employment has also come about with a sharp increase in benefits payments. February experienced the biggest budget deficit on record that saw the public sector net borrowing amount to almost 9 billion pounds. This is 8 times higher than what it was a year ago. Credible forecasts will thus be needed in order to restore the health of public finances.
Posted by Shue on May 2nd, 2009 :: Filed under
Uncategorized
Despite the internet bank Egg changing hands from Prudential to Citigroup, Citigroup intends to retain the
bank’s name but offer much wider range of services to its UK clients than what Prudential was previoulsy
able to offer. Citigroup claims that its experience in lending and its ideal credit histories will ensure
that Egg will become profitable in short order. As part of the sale, Egg customers will continue to receive
pensions and life assurance products from prudential for another 5 years after which Citigroup is expected to
distribute life assurance products to parts of Asia.
Posted by Shue on May 1st, 2009 :: Filed under
Uncategorized
The billionare investor Warren Buffet, who has huge investments in the banking and insurance industries, recently
said that the US economy has ‘fallen off a cliff.’ Speaking on US cable network CNBC, Buffet said that the economy
has not only slowed down, but habits of the Americans have changed considerably. The 78-year old owner of the investment and insurance firm Berkshire Hathaway added that it is up to the US government to turn around the economy and reduce the effects of the recession. His long term view of the recession was however optimistic but warned that unemployment will rise further before the recession is over. “We’re in a big war,and we’re going to use money to fight it. ”Change won’t happen overnight, he concluded. “You can’t turn around on a dime.”
Posted by Shue on April 30th, 2009 :: Filed under
Uncategorized
Prior to the G20 meeting in London, POBC has released a series of articles on its opinion regarding the causes of the
current financial crisis. In one of the reports, POBC said that regulation has failed to keep up with new emerging
financial institutions, products and markets. The statement said that there is a lack of understanding by regulators
of the cross-border activities among internationally active financial institutions. “In particular, there is a lack of
understanding of international capital flows,” the statement said. It thus called upon the International Monetary Fund
to set up a warning system that would watch out for imbalances and destabilizations of international capital flows.
Posted by Shue on April 29th, 2009 :: Filed under
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HSBC plans to raise GBP12.5 billion to help bolster its capital cushion and fund acquisitions. This capital raising,
despite the negative news, is a positive one as it points to the bank’s significant strength and a new-found
confidence in the banking sector which has proven to be hugely significant. This capital raising will be a
rights issue to its already existing shareholders and will not entail significant injections or assistance
from banks as is the case with RBS and Llyods. This will be a plain old rights issue to its shareholders.
Posted by Shue on April 28th, 2009 :: Filed under
HSBC
In a move to possibly boost its revenue, Citigroup bought the internet bank Egg from the UK insurer Prudential
for only 75 million pounds. This is 375 million pounds less than the original value, or about 40% less value than that
assigned by Prudential just a year ago. The reason for the sale, according to Prudential was growing losses for Egg.
The bank was estimated to have lost 145 million pounds last year alone. The move was considered a good one by
analysts as this was the best price on the market. According to experts, Prudential would have needed to infuse
additional capital into Egg if it would have had to fetch a better price. However, this move would not have gone well with
investors.
Posted by Shue on April 27th, 2009 :: Filed under
Citygroup
In a bid to stabilize its postion and reassure the markets, Citigroup has agreed to have the Government
restructure its board of directors to include more independent members. Last year, in a bid to cut costs, the
bank slashed over 50,000 jobs and in January, Citigroup was split into 2 separate entities. These 2
businesses would help in better management. Citicorp, one of the bodies, would continue to manage the
traditional banking work of the company while the Citi Holdings business branch would specifically handle the investment assets of the firm that are considered the riskiest. Some of the stocks owned by the Government are to be
converted to common shares.
Posted by Shue on April 26th, 2009 :: Filed under
Citygroup
The US Government now has a 36% stake in the troubled Citigroup bank up from the previous 8%, the Treasury
announced earlier in March. The higher stake comes with more responsibilities as this will mean the US
Government will have a more powerful influence over the bank. However, the day-to-day operations and control
of the bank will still be handled by the Citigroup’s board. This move will help raise the bank’s private capital
and still leave out extra taxpayer investment. Citigroup was one of the worst hit banks by the credit crunch.
The bank was bailed out in a deal worth $45 billion by the US Government. The bank’s risky loans were also
guaranteed with an extra $306 billion.
Posted by Shue on April 25th, 2009 :: Filed under
Citygroup
In Europe, the British stocks experienced a rise in february following the news on inflation that had also
caused the prices of food and fuel to go up. This has offset the deflationary effects of the economic crisis.
It was expected that consumer price index would drop as weaker demand would drive retailers to bring down
their prices to attract more shoppers. However, the index rose from 3.0% in January to 3.2% in February.
Commodity stocks have experienced heavy losses recently while markets across Asia continue to gain with
Hong Kong and Japan’s indexes each experiencing a stunning 20% surge over the month of March.
Posted by Shue on April 24th, 2009 :: Filed under
Uncategorized
Banks have noted that more than 90% of all homeowners currently are on their mortgages. While they argue
that their assets will ultimately perform, the discounted prices being offered by investors do not
thus reflect the real worth of these investments. In addition, recognizing the assets at a lower value may
leave them worse off than if they do not sell out and make them potentially insolvent. Government-backed financing
seems to be a sweetener but it is likely the banks will remain reluctant until they are offered a price that
matches or exceeds the value recorded in their books. FDIC chairman, Sheila Bair however lamented that
the banks will have to take the hit if they are to survive. There is no incentive for banks to participate.
Posted by Shue on April 23rd, 2009 :: Filed under
Uncategorized