...the main business headlines..........
US bailout plan hits snags
The $700bn bank rescue plan in the US encountered difficulties as House Republicans came up with an alternative plan and left negotiations unresolved. The group, led by Eric Cantor of Virginia, said they wouldn’t back a plan based on the one put forward by Treasury Secretary Henry Paulson and endorsed by President Bush and advocated instead that Wall Street companies should purchase insurance on mortgage-backed securities. In addition, they also recommended cuts in taxes and a number of relaxations in regulations.
JPMorgan acquires WaMu assets
JPMorgan Chase has purchased the banking operations of Washington Mutual, which went under on Thursday night in “the biggest bank failure in US history”, according to the Financial Times. JPMorgan will pay $1.9bn to acquire all the deposits, assets and some of the liabilities of the company, including its problem mortgage portfolio. The acquisition creates the largest US depository company, with $900bn of customer deposits, but represents a failure for private equity group TPG who led a group that bought a stake in April for $7bn.
Doubts raised over Lloyds TSB deal
Doubts have been raised over the Lloyds TSB takeover of rival HBOS, and the resulting shortfall of capital and exposure to bad debts, reported the Independent. Analysts said the new group’s combined exposure to more than £200bn of specialist UK mortgages, unsecured lending and commercial property might see it having to raise “at least £4.5bn of capital”. They also pointed out the risk that HBOS might try to renegotiate the deal which sees its shareholders walking away with 42 per cent of the company while contributing 70 per cent.
Lloyd’s profits blown off course
Lloyd’s the world’s biggest insurance market, saw profit before tax collapse 47 per cent in the six months ending June, said the Daily Telegraph. Chairman Lord Levene said the results were “no surprise” due to falling investment income and increased claims. Things are not likely to improve with analysts suggesting that Hurricane Gustav may result in $4.5bn of claims and Hurricane Ike may have $12bn of insured losses. The second half will also be negatively affected by a third consecutive year of falling premiums.
Ireland slides into recession
Ireland has become the first country in the Eurozone to enter recession, in the wake of the slump in its housing market, reported the Daily Telegraph. Its economy shrank by 0.5 per cent in the second quarter after a 0.3 per cent decline in the first quarter, forcing it into recession. The country’s biggest problem is that 21 per cent of GDP is based on the construction industry and house prices have fallen there for eighteen months in a row. Economists expect Italy to be the next to go into recession and it is a likelihood in Germany too.
Shipping sinks without trace
The price of leasing capesize shipping transport has fallen by the most in nine years on the benchmark Baltic Exchange index, said Bloomberg.com. And the decline may accelerate, with steelmakers scaling back production as a result of slowing demand in Russia and China. China, especially, is “at the centre of the collapse”. Chinese steelmakers, which account for one in three tonnes of the metal produced globally, have not reopened after the Olympics, leaving the country with record stockpiles of iron ore.
...in brief..................
HSBC cuts staff and hedge funds attack Church of England
HSBC has cut 1,100 jobs in its investment banking division, after the recent slump in the financial markets. The cuts are equivalent to four per cent of the company’s total employees and will take place in London, Europe and the US, leaving the company to focus on Asia and the Middle East…………
Marks & Spencer is expected to reveal a deterioration in trading in the second quarter, in an announcement next week. Analysts forecast that the retailer’s UK division will post like-for-like sales down by 6.7 per cent for the 13 weeks to the end of September…………
MFI, the struggling furniture retailer, is believed to be in urgent talks with its landlords, days before seeking emergency funding, said the Times. Merchant Equity Partners who bought the group for one pound in 2006 are reported to want to pay on a monthly basis ahead of finding a partner…………
Morgan Stanley has suffered sharp outflows in its prime brokerage business servicing hedge funds, after departures in the wake of the Lehman Brothers collapse, said the Financial Times.The losses “deal a big blow” to one of the bank’s most profitable arms…………
Research in Motion, the maker of the Blackberry mobile phone, announced below target profits last night. The 72 per cent rise in second quarter profits was below analysts' expectations and the company advised caution on future profit margins. Shares were down 15 per cent in after hours trading............
The Church of England has been accused of hypocrisy over its attack on short selling and debt trading, after hedge funds pointed out it uses some of the same techniques in investing its own funds. They said the church lent its own foreign stock and had £13m invested in hedge fund group Man…………
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