Which Spreads

UK banks express concern over EU veto

Arthur — Tue, 13 Dec 2011 16:31:05 +0000

Banks in the UK are worried that David Cameron's actions regarding the UK's role in solving the euro zone debt crisis could harm the City of London as a financial centre in the future.

Financial trading professionals may be among those harbouring reservations as Reuters reports that industry figures are concerned Britain's veto of European Union (EU) treaty alterations might lead to the district enduring further loss of influence in the banking industry.

Those working in the City claimed the decision was not prompted by them and noted the move could hinder, rather than bolster, their long-term prospects.

One insider told the news agency that the prime minister's stance will leave them "considerably worse off" than they would have otherwise been.

The source stated: "There is a very strong body of opinion, not all over Europe, but in many financial regulators, that Anglo-Saxon financial services have caused the crisis and therefore anything bad for us is good for them."

These comments came after Mr Cameron vetoed a treaty to save the single currency after he felt promises were not met that would give Britain the freedom it wanted with regard to the regulation of the City of London.

Such a move could serve to isolate Britain from its European neighbours and damage any relationships in the short-term.

The industry insider called into question Mr Cameron's actions and observed: "Having royally annoyed 26 members states I don't see how it's made things any easier."

As a result of the veto, the remaining EU members will be forced to come up with an arrangement without the support of Britain – a move through which it is hoped they will be able to forge stronger economic ties with one another.

In the aftermath of the summit meeting last week at which Britain pulled out of the deal, stocks tumbled and the euro fell, with leaders apparently unsure on what action to take next.

Confidence ‘not boosted’ by euro zone pact

Arthur — Mon, 12 Dec 2011 16:26:38 +0000

Confidence among financial trading professionals has not been bolstered by a summit meeting in Europe to help improve budget discipline in the region.

Stocks tumbled and the euro fell after the gathering, with the European Union (EU) being split on the best approach to take, Reuters reports.

Borrowing costs for both Spain and Italy climbed as investors tried to decide on their next move after Britain opposed a treaty change – a decision that meant other nations had to piece together a new agreement separate from the EU.

France's prime minister Nicolas Sarkozy told Le Monde newspaper that the legal basis of the new setup should be in place before Christmas, which may enable the drawing out of a treaty to be finalised by March.

Mr Sarkozy explained this action signals the arrival of a new Europe, adding this is "the Europe of the euro zone, in which the watchwords will be the convergence of economies, budget rules and fiscal policy".

The politician added it is "a Europe where we are going to work together on reforms enabling all our countries to be more competitive without renouncing our social model".

However, Jean-Michel Six, chief European economist at Standard & Poor's, warned that expectations for the continent's immediate future should not be raised too high.

The industry figure noted time is of the essence and action needs to be taken sooner rather than later with regard to both fiscal and monetary matters.

Meanwhile, a rise in Italian and Spanish yields resulted in the European Central Bank purchasing short-term Italian debt to bring the matter under closer control.

The news comes after Pier Carlo Padoan, chief economist at the Organisation for Economic Cooperation and Development, recently told Reuters that the ongoing crisis in the euro zone is currently the most notable threat to the stability of the global economy.

Banks react to MPC rate hold decision

Arthur — Fri, 09 Dec 2011 09:33:23 +0000

The Monetary Policy Committee's (MPC) decision to hold the base rate at 0.5 per cent yesterday (December 8th) sparked a flurry of comments from the financial trading and consumer banking sector, in a week when all eyes seem focused on the EU summit that looks to deal with the eurozone debt crisis.

There was also reaction to its statement that the asset purchase programme would remain at £275 million.

Independent mortgage adviser John Charcol said the MPC may need to employ various measures before the next interest rate meeting takes place in order to stimulate the economy – and a cut this month may have helped to reduce the cost of borrowing for consumers who have loans and other borrowings linked to the base rate.

However, the Bank of England's decision to make no changes to the quantitative easing strategy made more sense, John Charcol added.

Equally, the Norwich and Peterborough Building Society said it was widely expected that the interest rate would remain at 0.5 per cent. Global and national economic instability continues to be the main factor in the committee's mind when it reaches a conclusion every month, remarked Yorkshire group treasurer Chris Parrish.

Santander commented on the European Central Bank's role in the process moving forward, following the eurozone meeting this week.

"While the MPC again voted for no change in Bank Rate today, the financial markets focus will really be on the European Central Bank with the markets expecting a further rate cut although this is not guaranteed. Attention will also be focused on the post-MPC meeting press conference," stated Barry Naisbitt, chief economist of Santander UK.

The asset purchase programme is expected to take another two months before it is completed, the Bank said.

Consultation launched to improve large bank pay transparency

Arthur — Wed, 07 Dec 2011 16:50:13 +0000

A consultation forming part of the government's commitment to improve transparency in the banking sector was launched today (December 7th), in a bid to tackle "unacceptable" bonus payments.

One of the key aims financial trading professionals might already be aware of was explained by financial secretary to the Treasury, Mark Hoban, who explained that the system must no longer be allowed to place investors at risk by rewarding employees of large banks for short-term performance.

The consultation is part of the government's commitment reduce risk-taking within the industry, where better corporate governance is also needed.

Transparency arrangements would mean that in large banks, the eight non-board executives who receive the highest pay would have to disclose such financial details.

Mr Hoban said it was important for shareholders to have more tools at their disposal in order to "hold senior management to account".

"[This is] why we're taking action to make top-level pay more transparent. We want the most transparency for those with the greatest responsibility," he added.

It is suggested that the proposals would lead about 15 banks have better transparency.

The consultation was launched as prime minister David Cameron prepares to safeguard the UK's financial services industry.

He said it was "under continued regulatory attack from Brussels" and one of his aims at the upcoming EU summit would be to claw back power.

But Reuters noted he is likely to soften his stance, despite the potential to "drive a hard bargain" and demand more control of the country's interests in return for support of an answer to the Eurozone crisis.

Despite Britain being one of the ten nations that does not use the common currency, many reports suggested he could use the breeding EU debt crisis to gain extra safeguards.

UK banks ‘need to build up buffers’

Arthur — Thu, 01 Dec 2011 16:28:03 +0000

Financial trading professionals will have today (December 1st) heard the Bank of England (BoE) encouraging lenders in the UK to build up their capital buffers.

Sometimes referred to as the Old Lady of Threadneedle Street and founded in 1694, the body has recommended banks up these levels even further to counter the threat posed by rising economic uncertainty – a negative forecast that continues to be driven primarily by the debt crisis currently engulfing the euro zone.

The BoE's interim Financial Policy Committee explained institutes need to keep up their lending to the real economy, but exercise restraint in other areas.

These include the handing out of bonuses and dividends and can even stretch to the issuing of new shares.

Speaking at a news conference, governor of the BoE Mervyn King – who is also the committee's chairman – said: "It is sensible to raise the capital buffer further in order to improve resilience in light of the continuing threat to UK financial stability."

Mr King stopped short of providing specific targets, observing: "There is no simple answer to how much capital banks need to retain confidence."

It is hoped that such action will serve to give a timely shot in the arm to investor confidence and reduce the amount of debt that is set to mature across the first half of 2012.

By refraining from setting out specific goals, banks might not be tempted to sell off any of their units or to put an end to lending to businesses.

In addition, Mr King noted no time should be wasted with regard to the implementation of the ring-fencing of banks' retail and investment arms.

The recommendation – proposed by the recent Vickers Commission – has a deadline of 2019, but Mr King advised for this to be put into practice as soon as possible.

George Osborne: UK growth slower than expected

Arthur — Tue, 29 Nov 2011 16:23:21 +0000

Economic growth in the UK will be slower than forecast for the remainder of this year and into 2012 as well, it has been warned.

Those in the financial trading field would have heard George Osborne claim today (November 29th) that this trend is likely to result in the government having to borrow more and implementing greater spending cuts in order to prevent the budget deficit from widening further.

According to the chancellor of the exchequer, growth for the rest of 2011 will be 0.9 per cent – a level almost half the 1.7 per cent anticipated back in March.

In addition, this will amount to just 0.7 per cent in 2012, which is less than one-third of the 2.5 per cent previously estimated.

Mr Osborne – who is also the Conservative MP for Tatton – collated his findings using figures from the Office for Budget Responsibility and noted the deficit will escalate to £120 billion by the end of the financial year in March 2013.

This again is higher than the £101 billion estimated at an earlier stage.

During his end-of-year financial statement to the House of Commons in London, Mr Osborne observed: "Our debt challenge is even greater than we thought because the boom was even bigger, the bust even deeper and the effect will last even longer."

The politician pointed out that if the rest of Europe falls into recession, the UK will find it difficult to not follow suit.

"Much of Europe appears to be heading into recession caused by a chronic lack of confidence in the ability of countries to deal with their debts," he added.

However, Mr Osborne made reassurances that the Conservative-Liberal Democrat coalition will do all it can to help weather the debt storm for Britain while at the same time attempting to lay the foundation works for successful growth in the future.

European crisis ‘threatening global economy’

Arthur — Mon, 28 Nov 2011 16:29:04 +0000

The biggest threat to the stability of the global economy at present is the crisis currently engulfing the eurozone, it has been suggested.

According to the Organisation for Economic Cooperation and Development (OECD), the region now finds itself in the midst of a mild recession, yet the problem could be set to worsen.

The group noted more hardship may be around the corner unless policy makers act quickly and decisively in order to push ahead of the market.

In an interview with Reuters, Pier Carlo Padoan, chief economist at the OECD – which was established under its current name in September 1961 – admitted the euro could be at risk should the situation fail to improve.

The industry figure noted: "But I would like also to say that there is a possibility of avoiding that risk."

He pointed out the future of the single currency could be up in the air if there continues to be a lack of action in the eurozone and lawmakers in the US fail to come up with a suitable spending-reduction plan.

This would be a worst-case scenario and could result in a crushing downturn for the global economy, Mr Padoan observed.

"Time is running out and every time we lose the occasion to act effectively the price or cost for having positive outcomes goes up," he added.

It could be that the European Central Bank needs to increase its input to help solve the crisis, as Mr Padoan claimed the organisation is the only one of its kind with the power to contain the situation.

The Federal Reserve in the US, however, no longer has the resources to bring the problem to an end, the industry expert added.

Failure to act is resulting in a draining of confidence for both households and businesses, while increasing volatility among the financial markets.

ECB ‘considering ultra-long bank loans’

Arthur — Thu, 24 Nov 2011 16:32:28 +0000

The option of extending ultra-long loans to financial institutes across Europe is being considered by the European Central Bank (ECB).

Reuters reports that the body is looking at the benefits to be had by increasing the terms of the agreements it offers banks to two and possibly even three years.

It is hoped such a move would serve to prevent another credit crunch by slowing down the debt crisis that is currently engulfing the eurozone.

According to people familiar with the matter, this action could prevent the continent's economy from becoming choked up.

The ECB is mulling over what route to take as fears mount the sovereign debt crisis will soon begin causing serious harm to the interbank market, as banks begin to whittle down the number of organisations it is willing to lend money to.

Loan extension was brought up as an option during a meeting between the ECB and a collection of institutes including Barclays Capital, Goldman Sachs and Morgan Stanley.

A person with knowledge on the subject told Reuters the ECB would be willing to offer two or three years lending operations.

The industry figure added: "The question [for the ECB] is whether banks would be interested in it. It could be seen as a stigma if a bank was using two or three-year financing with the ECB. It might not get enough take-up to make a difference."

In addition, a second source suggested the ECB – which is the central bank for the euro, tasked with maintaining Europe's single currency's purchasing power – may be looking at its options with regard to providing liquidity over a similar time frame but by offering loans on a shorter-term basis.

This approach would also keep this line of credit open for at least three years, the industry figure went on to point out.

Cameron: Short-term measures not the answer

Arthur — Tue, 22 Nov 2011 16:05:00 +0000

Implementing short-term measures in a bid to boost the UK's struggling economy in the aftermath of the global recession would not be a sensible idea.

That is according to prime minister David Cameron, who has insisted that using temporary monetary stimulus plans as a way of lifting the country's financial gloom is an unwise option.

During a speech given at the annual conference of the Confederation of British Industry (CBI), Mr Cameron explained that tactics whereby the administration simply injects cash into the economy is an unsustainable solution and would actually make the situation worse in the long run.

The prime minister insisted the UK is "recovering from a debt crisis, not a traditional recession", meaning the need for prudent steps towards recovery is even greater than would ordinarily be the case.

"People who argue that traditional fiscal stimulus, extra spending funded by even more borrowing, is the right answer are not just wrong, but dangerously wrong," he added.

Independent think tank Reform today (November 22nd) stated that austerity measures may be required in Britain for the next ten years before the nation returns to pre-recession economic health, the Daily Telegraph reported.

The group indicated this is because slow growth is an inevitable consequence of the aftermath of a period of such difficulty, meaning spending cuts are the most sensible way of nursing the economy.

And it appears Mr Cameron agrees with these sentiments, as he stated that the nation would encounter a significant hike in government borrowing costs if the Conservative-Liberal Democrat alliance decided to alter its financial plans.

This, he added, could lead to Britain finding itself in a similar situation to the likes of Italy and Spain.

"Just look at countries in Europe that don't have credible plans for dealing with their debts. Their interest rates are climbing to levels that will make growth impossible," the prime minister noted.

UK-Germany disagreement sees shares dip

Arthur — Fri, 18 Nov 2011 16:26:10 +0000

A marked fall in sales will have been witnessed by those in the financial trading field today (November 18th) as a consequence of conflicting messages coming out of the UK and Germany regarding how best to tackle the debt crisis in Europe.

Indeed, Reuters reports that at 14:53 CET, the FTSEurofirst 300 index of top European shares was down 950.28 – a drop of 0.8 per cent.

The movement came after British prime minister David Cameron and German chancellor Angela Merkel admitted the two nations could not come up with an agreed way forward for the debt-laden region.

While Mr Cameron – the leader of the UK's Conservative party who is also the MP for Witney – claimed he would like to see decisive action taken to put an end to the issue, Ms Merkel explained a step-by-step approach would be the best way to ease the area out of its problems.

Ms Merkel accepted the British argument that a large amount of firepower would be needed in order to win back credibility for the euro zone, but added: "We have to take care that we don't pretend to have powers we don't have. Because the markets will figure out very quickly that this won't work."

In addition, the two leaders said they failed to make any progress with regard to the introduction of a financial transaction tax in Europe.

Ms Merkel explained it is only natural for there to be differences between nations, adding: "Europe can only prevail if all the strong countries of the European continent are represented and if we have a bit of tolerance for the different views."

The German chancellor had earlier claimed the UK is only defending its own interests, with most of the rest of Europe siding with her country and its plans for the future.