26 February 2009

Banking Giant Announces Biggest Loss Ever

Royal Bank of Scotland have announced their losses for 2008. The figure stands at £24 billion which makes it the biggest loss in UK corporate history.

The bank has been steeped in disaster since the Lehman Brothers failure brought near catastrophe to the banking sector as a whole. RBS has racked up debts through bad charges and the very unsuccessful acquisition of Dutch bank ABN Amro. Being blamed at the forefront are former managers at the bank, who are being accused of reckless and irresponsible behaviour.

Union leaders expressed that they feel it is now of paramount importance that the government steps in to fully take over the bank. At the moment, 70 per cent of the bank is owned by the taxpayer but full nationalisation might mean that more bank workers are protected.

Lending will increase, though who would want a secured loan from a bank embroiled in such difficulties? That is the question being asked by many, and the shareholders and bondholders will also be wondering how safe they are in the coming days.

25 February 2009

Obama Addresses Congress - and the World

President made his first joint Congress last night.

Unfortunately for the new president, it was a huge disaster and he was ridiculed in the press for the speech.

And anyone who believes the previous sentence must have just arrived in normal civilization from the depths of a jungle somewhere in the middle of nowhere.

The address, which was greeted with (mostly) a positive response from around the globe, gave a feel for a man who is ready to roll his sleeves up and work hard to regain strength and growth to the world's most important economy.

Mr Obama spoke of a country which had been behaving without regard for the future - people spending beyond their means, banks offering cheap or 'bad' loans to customers who couldn't afford them, a nation that was thinking in terms of short term gain.

Of course there was a negative response from the opposition, as is always the case. Bobby Jindal, a man who is already being tipped for possible future White House success, commented that the money Obama was spending in order to boost the country was money they don't have, and that it was 'wasteful'. He may be right, he may not - the real importance is whether it will do enough to help the US back onto its feet, as Obama believes it will.

Only one way to find out!

24 February 2009

Dow and FTSE Down on Forthcoming AIG Loss Announcement

It emerged that AIG, the world's insurance leader which was forced to be nationalised in September 2008, is due to announce their biggest quarterly loss in corporate history.

Last night the Dow Jones reached its lowest level since 1997 amid fears for the American financial sector. It closed at 7,114.78 - 251 points. Then Asian markets took on the trend - the Nikkei in Japan closed down 1.46% and the Hong Kong index was down 3.6%. Finally the London market opened with the FTSE 100 down 0.60% at 3827.72.

AIG is expected to announce their biggest quarterly loss in corporate history at $60bn. In September 2008, their near collapse nearly dragged down the entire world financial system - until the US government stepped in at the last moment and nationalised the firm. Now, they are close to bankruptcy, though seem reluctant to admit this. Emergency board member talks are to take place ahead of the figures being announced.

There is a general and growing lack of confidence amongst the various financial markets - stocks, currency exchange, investors - and many are wondering when the negative cycle will end. There seems to be some confusion as to what the US government plans to do next in order to save the financial system in America, which is not aiding the rumours and speculation trend.

A question being asked more frequently now is, what else are governments and authorities going to do besides throwing more and more money at the problem?

23 February 2009

European Leaders Meet Ahead of G20

Gordon Brown went to Berlin this weekend to meet with G20 leaders ahead of the next official G20 summit on the 2nd April, to be held in London.

Leaders from the biggest Eurozone economies met in Germany's capital to come up with some shared goals in order to deal with the economic crisis, which has affected the EU in different ways.

The main outcome of the meeting was the plan for an IMF fund of $500bn to boost the EU - an amount which Brown seems to think is not, in fact, quite enough. It is believed that the fund will help countries to deal with this crisis but also to deal with - and avert - future crises.

Some critics of the Euro as a single currency are increasing their argument as to why they believe it is detrimental to Europe, and that there is valid argument to withdraw. But there are others who are firm that the currency has, overall, been a success. Indeed, market traders would agree that as a whole the Euro has in its decade become a strong currency, despite the current problems. There have been major deficits in different countries' assets and current account balances - while stronger countries such as Germany have had to tighten their belts in order to deal with, what for them is a high interest rate, others have increased their spending and are therefore more behind.

Will there be increased argument for stronger economies to bail out weaker ones in the time to come? Or will the larger fiscal stimulus being introduced by many countries be enough to help?

20 February 2009

Euro Suffers More Falls

The value of the Euro is suffering, and it seems as if there may be a need for some togetherness from finance minister and leaders in the Zone.

The value of the Euro is suffering, and it seems as if there may be a need for some togetherness from finance minister and leaders in the Zone. Later today, it is expected that the European Central Bank will cut interest rates. So far, since October 2008, they have cut them to 2 per cent. The news has had a negative effect on the region's currency, which as already fallen by 2.1 per cent this week.

While some European ministers are calling for swift and drastic action in order to stave off such measures as intervention by the IMF, others - such as Germany's chancellor Merkel - seem to see no reason to worry. Merkel yesterday said the region remained 'strong'.

It does seem high time for the ECB to take some action in order to spur some growth for the Eurozone and for the foreign exchange market to regain some confidence in the currency. It desperately needs a boost after weeks of weakness against the dollar and the yen.

19 February 2009

Bank of England to Turn on the Printing Press

The Bank of England is due to introduce quantitative easing in order to try and prevent deflation in the UK. Quantitative easing is a method not used in around 30 years, and in a nutshell involves 'printing money' - by buying government and corporate bonds, the cash and credit flow to the economy increases, which in turn encourages spending and lending.

The move is due to be given the go-ahead by the government and could be put into action imminently. There are many who oppose the measure, and say that it could cause hyperinflation which historically caused some bigger disasters - even currently, places like Zimbabwe are suffering the effects of longterm inflation. There is also the risk to the currency - the pound has fallen further on the news, and surely a new influx of currency would only serve to depreciate the value of the pound? There are many who may be loathe to buy currency that is going to give no rewards.

Is the bank being reckless or is this really the best thing for the country?