What next for the people of Britain? A Financial Services Compensation Scheme...
07th Oct 08 - Each day has brought an extraordinary development that would have seemed astonishing just the day before. In the largest bank failure yet in the United States, Washington Mutual, the giant mortgage lender which had assets valued at $307bn (£167bn), was closed down by regulators. It was then sold to rival JP Morgan Chase for $1.9bn. The US investment bank Lehman Brothers was allowed to go bust while one of the world's largest insurers AIG was bailed out. In the UK, a takeover of the biggest mortgage lender HBOS was approved by the government to forestall a run on it by customers.
To try and put an end to the turmoil, the US authorities have been seeking approval from Congress for a $700bn bail-out plan to relieve the US banking system of its mortgage debts and limits were put on so-called "short-selling" of shares, both in the UK and the USA. BBC News looks at whether the average person is really in a different position from just a couple of weeks ago.
As long as you have less than £35,000 saved with any one UK financial institution, you will not lose if the worst happens and your bank goes under. That is because of the protection offered by the Financial Services Compensation Scheme. However, you might have to wait a while to get your money back. Unlike in the US, where small banks frequently go bust, there is no mechanism in place yet to effect a swift rescue of a UK bank. If you have more than £35,000 in any one institution you might consider moving some of it to another one. (Info from the BBC)
Shares plunge as Bradford & Bingley is nationalised
30th Sept 08 - Today's break-up will mark a dramatic end to a business which can trace its roots back more than 150 years. The Financial Services Authority (FSA) decided on Saturday morning that B&B was not strong enough to continue as a deposit-taking business after the recent financial turmoil undermined confidence in the bank.
'The Government, on the advice of the FSA and the Bank of England, acted immediately to maintain financial stability and protect depositors, while minimising the exposure to taxpayers,' the Treasury said. 'For savers and borrowers of Bradford & Bingley it will be business as usual,' it added. But Gordon Brown today came under fire by Shadow Chancellor George Osborne for running 'Casino Capitalism'. Speaking at the Tory conference, Osborne said 'The Brown boom has ended in bust.'
Meanwhile Brown pledged to do 'whatever it takes' to preserve the financial system after a second bank nationalisation in a year. Before B&B became a bank in 2000, it was one of the UK's best-known building societies. It has around 3,000 staff and 197 branches, and was the last former building society to retain its independence after the nationalisation of Northern Rock in February and July's announced takeover of Alliance & Leicester. Read more (Info taken from ThisisMonay.co.uk)
mjward.co.uk teams up with Portsmouth EXPO to assist in The Festival of Arts
1st Sept 08 - In 2005 a small group of local artists, not professional, felt that this city of ours was not interested in the wealth of talent existing within the area, and that there was very little in the way of venues where their work could be shown to the public. The group now consists of two artists, one photographic person, one promotions person, one P.C.C. Councillor as cultural advisor, one Director of City Museum as Commerce Advisor and the General Manager of the Pyramids – Ben Lawrence and the programme co-ordinator of the Pyramids – Pam Stewart.
Michael Jon Ward of mjward.co.uk has joined the group helping to set up a permanent website. With such a comprehensive project team an association is born. We will at the festival, be looking amongst the talent on show, for people with enthusiasm, with some free time and above all some dedication, to be an important part in the birth of an association which will look to maintain show venues for the massive amount of varied talents in this area. Please visit the Festival of Arts website
Housing giant suffers massive land hit
Lauren Mills, Financial Mail 24th August 2008 - Housing giant Taylor Wimpey is expected to cancel its interim dividend and write down the value of its UK land by a massive £550m this week as the credit crunch continues to hammer the building industry. The deep cut in the value of its land assets, amounting to a 10% fall on last year, will be announced alongside half-year results that will show a sharp drop in profits from last year's £140.9m. The dire news from Taylor Wimpey will come just a week after rival Persimmon slashed its interim dividend from 18.5p a share to 5p a share after announcing an 87% slump in pre-tax profits for the first six months of the year.
In a further blow to confidence, one source close to Taylor Wimpey warned that it was also planning to review its pension scheme, making a more detailed analysis of its liabilities to current and former staff. It is thought the pension liabilities could almost double. One banking source said: 'Taylor Wimpey is reviewing its pension liabilities, from a general approach to a scheme tailored to its pensioners. 'This typically leads to an increase. We estimate the pension liability will go from £219m to about £400m.'
The company, formed through a merger of George Wimpey and Taylor Woodrow in July last year, declined to comment. Though the jump in liabilities will have no immediate effect on cash flows or profits, it would be a serious obstacle to any takeover at a time when the entire housing sector is seen as ripe for a wave of mergers. The group recently failed to get a £500m equity injection from new and existing shareholders. The company has appointed investment bank NM Rothschild to help it renegotiate the terms of its £1.7bn debt mountain. It will breach the terms of its bank loans by next February unless it can get its banks to agree to waive some of the terms. Rothschild recently negotiated a covenant waiver for Barratt Developments. Taylor Wimpey wants to sell its construction arm in an attempt to generate much-needed cash. Bankers reckon the business could fetch about £150m. (Above Information taken from ThisIsMoney.co.uk)
What has been happening to the world's stock markets?
August 19th 2008 - The value of the world's major companies has taken a tumble as the world's stock markets have plunged in recent days - one of several such sharp declines in the past few months. The move has wiped billions of dollars off the value of shares owned by individuals and institutions such as pension funds and insurance companies. This most recent fall started when a French bank, BNP, said it would freeze three investment funds because it could no longer accurately measure their value. Markets fell around the world because they were nervous that the problems are not just confined to French banks, but are more widespread in the financial sector - especially in relation to sub-prime mortgage lending.
Interest rates in credit markets - such as the bonds issued by companies and governments - have been rising as investors price in previously unknown risks. Fears that more undisclosed bad debts would surface in the banking sector led other banks to cut back on their everyday lending to one another. If this had continued, it would have undercut the ability of world central banks to regulate interest rates, and would have raised the cost of borrowing across the board!
The idea was that, even if they eventually couldn't pay, the banks could recoup any losses by repossessing and reselling the houses - and in any case, house price rises would cushion the blow. In the most extreme cases, mortgage brokers were handing out what came to be known as "Ninja" loans, to people with no income and no job or assets. (The above info was taken from BBC)
The pound has fallen further against the dollar, its lowest level in almost two years
August 14th 2008 - Sterling touched its lowest level since October 2006 at $1.8617. Measured against a basket of trade-weighted currencies, the pound is now at its weakest level since 1996. The pound dropped sharply on Wednesday after the Bank of England issued its gloomiest assessment yet of the health of the UK economy.
The Bank's governor Mervyn King said economic growth would be flat for the next year or so and that inflation would rise to 5% or above before falling. Economists had thought inflation would prevent the Bank of England from cutting rates, but the Bank's suggestion that inflation will begin to ease raised expectations of interest rate cuts and this hit the pound. Lower interest rates mean investors get lower returns on sterling deposits, which makes the pound less attractive.
Simon Derrick, currency strategist at Bank of New York Mellon, called pound's fall this week a "dramatic collapse" that recalled the aftermath of sterling's ejection from European Exchange Rate Mechanism (ERM) in 1992. However, he said the currency's slide should begin to ease. "Even within the most ferocious sterling downtrends in the past, significant corrections emerged in the middle of the moves," (The above info was taken from BBC)
Alliance & Leicester spoke about the first six months of 2008
August 14th 2008 - The bank, which has agreed a £1.26bn sale to Abbey's Spanish banking parent Santander, reported interim pre-tax profits of £2m, down from £290m. A&L said it had been hit by losses on investments hurt by the credit crisis and soaring funding costs in crippled wholesale money markets. It said the value of certain investments fell by £66m in the first half and the impairment of other assets cost £143m. The bank said it took a £398m knock from the credit squeeze in the first half.
But this was up just marginally on the figure reported in May and only £209m of the hit affected the A&L's bottom line. Underlying core operating profits - with credit crunch writedowns and funding costs stripped out - rose 2% to £301 million, said A&L.
The group's mortgage business has slowed dramatically as it seeks to tighten lending criteria in the face of market troubles. Its share of gross lending - all new business and advances - has more than halved to 1.6% from 3.4% in the first half of last year.
David Bennett, group chief executive, said A&L was taking prudent action and proving resilient to the market woes, but warned the problems in the sector may not ease for some time. "There is a risk that the current economic and market turbulence could continue for a significant period of time and a risk of further uncertainty and contagion impacting the valuation of Alliance & Leicester," he said. "Against this background, the proposal from Santander provides both greater stability and greater certainty in uncertain times." (The above info was taken from Sky.com)
Latest Stock Market July 08
July 4th 2008 - The Stock Market has been like a yo yo in recent weeks! Shares in Bradford & Bingley plunged 11% today (04.07008) as the City balked at a new bailout cooked up after a US private equity house turned its back on the troubled bank. Texas Pacific Group abandoned at the last minute plans to inject £179m into the mortgage lender as part of a £400m fundraising deal. This forced B&B to fall back on its current shareholders to raise the extra cash through an enlarged rights issue at 55p a share. B&B's largest investors backed the new deal, underwritten by Citi and UBS, but analysts warned there were still obstacles to overcome and the shares fell 6½p to 54½p today.
Chairman Rod Kent is not expected to survive the latest debacle. The City is furious with B&B and its advisers Goldman Sachs, having first seen a rights issue at 82p a share fall apart and then the TPG deal collapse. There are concerns this third proposal could also fail. James Hamilton of Numis said: 'There is a very real risk that achieving £400m of funding at 55p will not be possible. This would undoubtedly impact the credit rating of the group further and so diminish the probability of survival. We are not saying it won't happen, but until the cash has absolutely arrived we will not give them full credit.'
TPG had pledged to pay £179m for a 23% stake in the mortgage lender alongside a £258m rights issue at 55p a share. However, it turned its back late last night after credit rating agency Moody's downgraded the bank's debt to just three notches above junk status. B&B, a big player in the crumbling buy-to-let mortgage market, now has the lowest credit rating of any of the big British banks, making it more expensive to raise money.
Also this week a City 'superwoman' Nicola Horlick today warned investors to avoid the stock market for the next two to three years because of the credit crunch. The influential multi-millionaire fund manager, who now heads Bramdean Asset Management, said she saw no sign of any return to a bull market 'in the near future'. She is advising clients to steer well clear of shares - also known as equities - and look at alternative investments. Her warning follows another turbulent day on the stock market yesterday-in which the FTSE-100 index of leading shares plunged 146 points. Although the market recovered a little ground today, analysts see this as a classic 'dead cat bounce' - traders' jargon for a short-term and illusory rise.
The Footsie - the most closely watched measure of the performance of the stock market - is now down almost 20% since its peak at 6730.7 last autumn. A 20% fall is widely regarded as the definition of a classic bear market. Although only a small percentage of the population own a portfolio of shares directly, almost every household will be affected through the value of their pension funds, endowment policies and other investments.
This year's huge fall has been led by the sectors that have suffered most in the credit crunch - banks, property and retail. Marks & Spencer shares today dropped more than 20% on its shock trading warning, dragging other major high street names such as Next, down eight per cent, in its wake. Shares in house builders have also been mauled as first-time buyers have temporarily abandoned the property ladder. Shares in Taylor Wimpey, Britain's biggest housebuilder, lost 50% of their value in minutes today after it admitted failing to raise rescue finance from the City. Shares in Barratt another major house builder, have lost 97% of their value. But some leading commentators say this is not a time for investors to lose their nerve.
Howard Wheeldon, senior strategist at BGC Brokers, said: 'We are obviously in very, very difficult times. But if you are in the market you might as well stay there, don't bale out. There will be the odd company that will go under, that is bound to happen, but eventually by staying there you will be all right. 'But is it right to invest more money in the market at the moment? The answer has to be 'no'. I don't see the FTSE-100 going below 5000, but what we need is stability.'
Another leading commentator said that although shares looked cheap, the wave of bad news about the economy meant only the bravest would dip into the market now. 'If you challenge the logic of sentiment verses valuation, then sentiment is going to win every time.'
With some bank accounts paying up to 7% interest the returns on cash are at their highest level for 15 years. The increased protection for depositors announced by the Government this week means that staying in cash is even more attractive in uncertain times. However, many investors will be looking for signs the stock market is bottoming out and will be ready to buy back into shares to make big instant profits when the mood changes - as it always does. (Above Information taken from ThisIsMoney.co.uk)
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