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Citywire Money, Tax and Property

  • Why this bull market could last two more years
    Thu, 11 Mar 2010 09:28:45 GMT
    As the recovery moves into its second year, there are reasons to be optimistic with every post-war bull market having run into a third year and lasting 50 months on average.

FT.com - Financial Markets News

  • Oil slips while sugar steadies
    Thu, 11 Mar 2010 10:28:45 GMT
    Crude oil prices maintained a hold above the $82 a barrel level while base metals dipped and the sugar market managed a partial rebound after a sharp fall earlier this week

Citywire Investment News


Citywire News


FT.com - Equities

  • Harbinger bid hopes fade
    Wed, 10 Mar 2010 19:45:24 +0000
    A revival of takeover speculation helped the FTSE 100 hit an 18-month high, but Inmarsat was left behind

BBC News

  • Patchy picture on school places
    Thu, 11 Mar 2010 10:45:39 GMT
    Most families in England were given their first choice of secondary school - but the picture is varied.
  • Profits at John Lewis rise 9.7%
    Thu, 11 Mar 2010 10:36:47 GMT
    Department store group John Lewis reports a 9.7% rise in annual profits to 306.6m as staff share a bumper bonus.

Sky Business News


BBC Business News

  • Profits at John Lewis rise 9.7%
    Thu, 11 Mar 2010 10:36:47 GMT
    Department store group John Lewis reports a 9.7% rise in annual profits to 306.6m as staff share a bumper bonus.
  • Greeks stage fresh general strike
    Thu, 11 Mar 2010 10:32:08 GMT
    Public and transport services grind to a halt in Greece as workers stage a third strike in protest at austerity measures.

Times Online Top Stories

  • Confusion over fate of kidnapped British boy Sahil Saeed
    Thu, 11 Mar 2010 07:17:41 GMT
    British diplomats are checking reports that Sahil Saeed, the five-year-old British boy kidnapped in Pakistan, has been rescued amid confusion over his fate.img width='1' height='1' src='http://feeds.timesonline.co.uk/c/32313/f/440134/s/9746441/mf.gif' border='0'/br/br/a href="http://da.feedsportal.com/r/65750262817/u/0/f/440134/c/32313/s/158622785/a2.htm"img src="http://da.feedsportal.com/r/65750262817/u/0/f/440134/c/32313/s/158622785/a2.img" border="0"//a
  • System failed family of ?the British Fritzl?
    Thu, 11 Mar 2010 00:01:35 GMT
    A father who repeatedly raped his two daughters and made them pregnant 18 times during a tyrannical 35-year campaign of physical and sexual abuse escaped detection because of a litany of failings by care professionals, a report revealed yesterday.img width='1' height='1' src='http://feeds.timesonline.co.uk/c/32313/f/440134/s/972490f/mf.gif' border='0'/br/br/a href="http://da.feedsportal.com/r/65750018981/u/0/f/440134/c/32313/s/158484751/a2.htm"img src="http://da.feedsportal.com/r/65750018981/u/0/f/440134/c/32313/s/158484751/a2.img" border="0"//a

BBC: Robert Peston

  • Why a new government may extend support to banks
    Thu, 11 Mar 2010 08:34:32 +0000

    There is a much bigger story in the Financial Service Authority's Financial Risk Outlook than the new stress test which I wrote about yesterday.

    It is that the UK's banks have to find £440bn of loans and finance between now and 2012 to replace maturing debt.

    The Gherkin and Canary Wharf

    There are only three places that money can come from.

    The money could come from savers in the form of a growth in deposits.

    And, as it happens, we have been saving a bit more in the UK.

    But if the banks' stock of lending stayed flat for the next couple of years (which looks plausible if unpleasant for our economy) and we saved at the rate of the last three months of 2009, the gap between banks' loans and deposits would still be just under £400bn at the end of 2012.

    According to the FSA, we would have to increase our saving in bank deposit accounts by 12% per annum to close the funding gap, which - in the FSA's words - would "imply a savings rate far in excess of conceivable levels".

    Another possible funding source are markets for asset backed securities, which closed with such calamitous consequences for the global economy in the summer of 2007.

    Now, banks have again started to be able to raise money by packaging up mortgages and selling them to investors in the form of bonds; these markets are back in business.

    But in order to close that £440bn funding gap, our banks would have to issue new debt in the next couple of years on a scale equivalent to the boom years of 2004 to 2006.

    There are two problems with this.

    First, it may not be possible.

    Second, it may be highly undesirable: separate research by the FSA shows that these asset-backed securities - or at least those retained on banks' balance sheets - were the source of a staggering 70% of all losses on loans and investments incurred by 10 of the world's biggest banks (including the UK's) between the summer of 2007 and March 2009.

    In other words, further instability and chronic weakness in the banking system could be the consequence of closing the funding gap by resorting to the securitisation market.

    Where else could the money come from?

    Well there is only one other place: taxpayers.

    As it happens, over £300bn of the maturing debt that the banks have to replace is the finance provided by taxpayers to prevent them from collapsing in late 2008 and early 2009.

    This taxpayer finance takes the form of £134bn of state guarantees for debt issued by banks under the Credit Guarantee Scheme and a further £178bn of Treasury bills provided by the Bank of England in exchange for banks' securitised mortgages.

    If this sounds complicated, just think of it as just over £300bn of loans by taxpayers to banks, which are scheduled to be repaid by 2012 or so.

    Now the clear implication of the FSA's analysis of banks' £440bn financing requirement is that taxpayers would not be able to withdraw that £300bn of support in 2012 without precipitating another banking crisis, or an economic crisis, or both.

    Which means that any new government has a very difficult decision to make more-or-less immediately after the general election: should that £300bn of taxpayer support be extended?

    Failure to do so would have one immediate and dangerous effect: it would encourage banks to stop lending; since the less any bank lends, the less it has to borrow, the less finance it has to raise.

    But if banks went on such a lending strike, the UK would inevitably be tipped back into recession.

    However if a new government rolled over that £300bn of support, that £300bn borrowed by banks would increasingly look like a long-term liability of the state; and in those circumstances there would be a stronger argument that the £300bn should be added to an already-ballooning national debt.

    Which could be painful.

    Finally it is probably worth pointing out that one bank, Lloyds, is much more exposed to this problem than others.

    It has received £157bn of taxpayer finance via the Special Liquidity Scheme and the Credit Guarantee Scheme.

    Quite how it would reduce this to nil by 2012 without closing its door to new lending is somewhat intriguing.


  • How much stress can the banks take?
    Wed, 10 Mar 2010 17:28:31 +0000

    Perhaps the biggest cultural change since the credit crunch is that the Financial Services Authority (FSA) now takes the long view of financial history and insists that banks prepare for once-in-a-century financial catastrophes - the kind of disasters that regularly happen, but only after memories have dimmed of the preceding one.

    So the watchdog's latest financial risk outlook instructs bank to make sure they have sufficient capital to withstand losses generated by the following scenario:

    "A further decline in GDP of 2.3% from the end of 2009 to the end of 2011, with gradual recovery thereafter. Alongside this fall in GDP, the scenario includes a rise in unemployment to a peak of 13.3% in 2012, and allows for a 'doubledip' in property prices, with house prices falling by 23% from current levels and commercial property by more than 34%."

    Now, for the avoidance of doubt, the FSA is not forecasting that the UK will re-enter recession. In fact its so-called "central" projection (what it thinks most probable) is that there will be a "V" shaped recovery, with GDP growth accelerating this year, to 1.4% in 2010 and 2.2% in 2011.

    This "central" projection is no more sophisticated than the mean of professional forecasts. And they have been pretty wide of the mark in recent years.

    So a prudent FSA - which wants to avoid a repeat of 2008's near collapse of the banking system - has to make sure that our banks have enough of a buffer of capital to cope with a lot worse than what economists expect.

    Do Britain's banks currently have enough capital to absorb additional losses generated by a second recession and further sharp falls in asset prices?

    Probably. The FSA insists they hold core tier one capital - which is basically pure equity - equal to a minimum of 4% of loans and other assets weighted according to the Basel Committee's widely criticised rules.

    Right now the core tier one ratios of all our biggest banks is more than twice that. Most of them have ratios greater than 10%. Lloyds has the lowest ratio of the pack at 8.1%.

    Which is not to say that they are invulnerable.

    The FSA, for example, believes that the sharp falls in interest rates engineered by central banks to resuscitate the global economy may be disguising rather than solving the repayment difficulties being experienced by some borrowers: for arithmetic reasons it takes longer when interest rates are at record low levels for any borrower that stops repaying to cross the arrears threshold that sets alarm bells ringing in a bank's head office and at the FSA.

    All that said, if the FSA's worst fears materialise and we enter a second recession (which plainly in the light of today's weak industrial production figures is not inconceivable), we should be worrying about other things than the solvency of our banks (although those other things, such as the credit-worthiness of the government and social cohesion, aren't exactly trivial).



FT.com - Your Investments

  • Buying unpopular themes
    Mon, 8 Mar 2010 14:54:35 +0000
    In the search for better returns, John Baron looks at some out-of-favour sectors for investment trusts

FT.com - Your Pension

  • Employees face more pension cuts
    Fri, 5 Mar 2010 18:04:22 +0000
    Investors are being urged to take more control of their retirement savings, as workplace pensions come under increasing pressure.

FT.com - Your Tax

  • Can I change divorce settlement to help pay tax?
    Fri, 5 Mar 2010 18:15:11 +0000
    I am a UK entrepreneur living mainly abroad since my divorce. I was concerned to read that HM Revenue Customs recently won the right to levy £30m in back-tax on entrepreneur Robert Gaines-Cooper
  • Naming and shaming law comes into force
    Wed, 3 Mar 2010 16:55:35 +0000
    A fresh assault on tax evasion has been launched by HM Revenue Custom after new legislation allowing the publication of names and details of individuals and companies came into force on Wednesday

FT.com - Your Property

  • Brazilian property: not such a nutty idea
    Wed, 10 Mar 2010 13:55:16 +0000
    Investors take a high-risk, high-reward gamble on property markets in the emerging economies of India, China, Eastern Europe and beyond

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