Financial Services Authority chief executive, Hector Sants has warned the financial services industry to be wary of the City regulator, claiming the new regulatory regime will be more intrusive than before.

The new rules will even include how much case banks can hold in reserve.

Chancellor Alistair Darling is backing these new regulations, pointing out the importance for “backstop” powers to stop banks overstretching themselves.

He told Channel 4 News: “Banks took on too much risk. RBS for example buying the Deuch bank ABN – they took too much risk.”

The aim of “backstop” power is to limit banks lending and will “make sure that banks have got adequate capital against times when things are tough, I think that is very, very important,” he added.

‘People Should be Very Frightened’

Mr Sants comments were part of a speech he gave on the lessons of the banking crisis, in which he also added that society was demanding aggressive intervention in order to prevent banks taking unnecessary risks that bring the financial system down further.

He also said: “There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA.”

City regulator has been criticised for its lack of intervention in its role as UK banks supervisor in order to stop huge liabilities building up, which has lead to the massive credit crisis we are currently facing.

Last month, the new chairman of the FSA admitted that the FSA was also guilty of not performing its role as well as needed, and that it had not focused on the “excessive risks” that banks had been taking.

He told the BBC: “the FSA at that time was more focused on the processes, the structures, the reporting lines, rather than simply saying ‘when I look at this whole business model…it’s all too risky’.”

It won’t be long before the FSA publishes the full extent of their plan to change the financial services industry regulations, which will include a new system controlling the pay of bankers.

Intensive Supervision Needed

Mr Sants has advised for more “intensive” supervision of banks in order to prevent a “similar crisis” in the future.

He also said that the FSA would take action if it decided actions of senior bank managers were too risky, even at the risk of stifling innovation.

He said: “This is a fundamental change. The revealed preference of society says that this is, and possibly always will be, what society as a whole expects regulators to be doing. Indeed, it was what they thought we were doing.”

Sir Nigel Rudd, deputy chairman of Barclays bank has also shown his disapproval of banks actions, going so far as to call other banks “lunatics”.

He said: “we couldn’t compete with these lunatics who were throwing money at the market: 125% mortgages; self-assessment; it was madness.”

What Do You Think?

Leave your comments here.

The Bank of England is looking to the government for approval for their new plans to help boost the supply of money in the economy, with the aim that by using quantitative easing, this will increase the amount of funds available in the UK banking system.

The Bank hopes that this measure will increase the sense of security for commercial banks to increase their lending levels again.

What Does The Bank Intend To Do?

Analysts believe they should start introducing these measures as soon as possible, preferably within the next few days.

It is expected that the plans will include both government and corporate bonds being purchased.

However, in a meeting that took place earlier this month, the move has not been unanimously agreed by all nine members of the Monetary Policy Committee (MPC).

The minutes from the same meeting also show that the members of the MPC voted 8-1 to cut interest rates to 1% later this month.

Will this be enough?

 The Bank is suggesting that cutting interest rates alone again may not be enough to help pull the economy out of the recession and that quantitative easing may be necessary.

The minutes from the meeting said: “to the extent that further cuts in bank rate could not inject sufficient stimulus, the committee would need to use alternative policy instruments.

“There was a great deal of uncertainty about what would happen to banks’ and building societies’ ability and willingness to lend at low levels of interest rates,” the minutes reported after numerous business groups including the FSB, claimed that recent interest rate cuts were not working because banks are still too reluctant to lend money.

Action’s Needed, And It’s Needed Now!

Senior economic advisor to Ernst & Young Item Club said: “the vote on rates was in line with expectations but the most important aspect of today’s minutes was the unanimous vote to write to the Chancellor to seek his consent to implement quantitative easing.

“Items believes that it is crucial that the Bank be allowed to swiftly and boldly implement this policy.”

British Chambers of Commerce (BCC) has said that the MBC has to be bold.

According to economist David Kern: “there is a critical need for aggressively pursuing quantitative and credit easing. Businesses must be reassured that the MPC and the Bank will move in that direction.”

What Do You Think?

Is quantitative easing going to help the floundering economy?  Is it too late now to be of any good, or should it only be used as a last resort? Leave your comments here.

Is No Nationalisation a Good Move?

According to Prime Minister Gordon Browns’ spokesman, the government does not intend to nationalise Lloyds bank.

This comes after the Lloyds Banking Group shares were reported to have fallen 20% after Friday mornings announcement of huge losses of £11 billion for 2008 at fellow bank HBOS. Trade later recovered by 0.16%.

The bank is owned primarily by the government (43%) and the slump raised worries it could need more government funding or be nationalised, but today the government is saying it was giving “no active consideration to nationalising Lloyds.”

No Regrets…

The spokesman also added that the Prime Minister had no regrets about allowing the merger between Lloyds and HBOS, but rather still believed that the merger was in the interest of the stability of the financial system in general.

Mondays trading at the bank was also unpredictable and caused shares to fall further into the negative figures, possibly caused by rating agency Moody’s downgrading their rating on Lloyds’ bank deposit and senior debt ratings.

Moody’s said: “the high level of troubled and higher risk exposures within HBOS,” therefore weakening the profitability of the whole group as the reason for its decision.

The government has already put £17 billion into the banking group, but some analysts are questioning their decision to take over HBOS and believe that, like Northern Rock, it needs to be nationalised.

Stephen Timms, Financial Secretary to the Treasury, said that at the moment, the government was not contemplating putting more money into Lloyds.

He said: “I am confident that, in the long term, this [Lloyds] is going to be a strong and successful commercial operation,” adding that the government would “take whatever action is needed to secure long-term stability in the financial system.”

Outrage Over Staff Bonuses

It was discovered that over the weekend, Lloyds intended to reward its staff with bonuses of up to £120 million, saying its employees deserved “financial recognition” for hitting targets.

Though they have been criticised by investors and politicians for rewarding failure after the government bail-out plans. Both the current government and the Tories have said that bank executives should not receive bonuses, but lower salary staff should.

The five Lloyds executive directors have all agreed to voluntarily give up their bonuses from 2008.

Last week MPs questioned key British bank bosses and former bosses about the financial crisis and their role in it. As a result of this, the previous bosses of HBOS and the Royal Bank of Scotland, who have been worst affected by the economic slowdown, were said to have apologised “profoundly and unreservedly” for their banks failure.

What Do You Think?

Should Lloyds be nationalised? Is there a better way forward the government should consider? Is it fair for any bank executives to get bonuses? What else do you think those bonuses could be spent on for the better? Leave your comments here.

The Financial Services Authority (FSA) has admitted its watchdog was mistaken and did not focus enough on the excessive risks currently being taken by banks.

Lord Turner, who took over as chairman of the City watchdog in 2008, has told the BBC that they “didn’t focus enough on that”, and that by 2004 the “whole system was risky,” stressing that regulators worldwide missed the problem as well.

Well-founded Criticisms?

Lord Turners deputy, Sir James Crosby, resigned from his position just last week after criticism of the decisions he made as the chief executive of HBOS.

Criticisms were also made at the decision to appoint Sir James to his job at the FSA, due to the fact that the watchdog had already warned about the problems of the risk regime he had set up at HBOS.

In My Defence…

However, Lord Turner made clear that it was the Treasury’s decision to appoint Sir James, but also said that the warnings about the risks at HBOS had been routine matters that related to the processed and structure as opposed to the risks Sir James was taking.

He has admitted that the FSA should have focused more on such things as these, another failure on their part. He said: “The FSA at that time was more focused on the processes, the structures, the reporting lines, rather than simply saying ‘when I look at this whole business model… it’s all too risky’.”

It was revealed on Friday that HBOS was expected to make a £10 billion loss. Lord Turner also commented on this, saying: “The losses that have been revealed this week, I would point out, are not huge surprises to the FSA,” claiming that the authority had predicted such numbers after stress tests were carried out on the bank in October last year.

What Will Happen Now?

On March 18th, Lord Turner will publish the findings of his current review of how the financial sector is regulated, but has said that it will bring about some “very major changes” to the way banks are currently regulated.

Example of such changes that are expected include: how much cash they have to hold in reserve; changes to the rules on credit rating agencies; and changes to how bankers are paid.

Lord Turner also defended his decision for FSA staff to take their bonuses, but hastened to add that the chief executive Hector Sants has refused to take his.

He added that if he were to take away bonuses from the rest of the staff, this would mean cutting pay by 15% on average at a time when politicians are saying that the regulator needs to take on better staff.

What Do You Think?

Is anyone to blame for the problems? Has the FSA made mistakes? If so, is it too late to rectify them? Should staff be allowed their bonuses? Leave your comments here.

As the global economic crisis continues to cause problems, G7, which consists of the leading industrial countries in the world have vowed to avoid protectionism.

The G7 currently consists of: Germany; Italy; France; the UK; the USA; Canada; and Japan.

What Was Decided?

Finance ministers representing their countries at the G7 summit held in Italy, have all voiced their belief that raising the barriers on free trade would only make the economic situation worse than it currently is.

Just hours before this decision was reached, the US Congress approved a $787 billion economic recovery plan. This plan includes a “Buy America” clause, which has caused fears that protectionism could grow in the world’s largest economy.

Ministers from the summit said that stabilising the world economy and the financial markets was their top priority, and that they would work together to support growth and jobs.

What Was Said?

After the meeting had taken place, US Treasury Secretary Timothy Geithner gave a statement dismissing such concerns. He said: “All countries need to sustain a commitment to open trade and investment policies which are essential to economic growth and prosperity.”

Ministers from the G7 meeting also called for reform to be made to the International Monetary Fund, as they believe that the crisis has shown weakness in the current world finance system. In a statement, the Ministers said: “We agree that a reformed IMF, endowed with additional resources, is crucial to respond effectively and flexibly to the current crisis.”

The statement also covers many other points that were discussed at the summit, including:

• Praise for China’s recent economic moves
• Help needs to be given to banks
• The need for a quick finish to the Doha talks on world trade.

A correspondent at the meeting, says that what the meeting was billed as and what it turned into were two distinctly different things.

He said that the meeting was meant to be to discuss the broad issues of the economic crisis, however it turned into a meeting to decide on major policy initiatives.

What’s The Next Step?

Alistair Darling, the UK’s Chancellor of Exchequer (Finance Minister), said it was a stepping stone for the G20 meeting in London that is scheduled for April. This meeting also includes big emerging economies like China and India.

What Do You Think?

Should more have been decided at the G7 meeting? Are the G7 countries doing all they can to help the economic downturn? What do you think they should do? Comment here.

Barclays bank is thought to be making profits of £6.08 billion for 2008 before taxes, a 14% drop on its profits in 2007.

Marcus Angius, chairman of the bank, said business has been “solidly profitable despite strong headwinds” that have been experienced during the year.

However, the bank’s bad debt charges have almost doubled in the last year, now reaching £5.4 billion.

Barclays is one of many banks particularly those that have accepted taxpayers money, who have announced they will not be paying any bonuses to executive directors for 2008.

Even Prime Minister Gordon Brown has said earlier this week that there should be “no reward for failure.”

John Varley, chief executive of Barclays said: “for 2009 and beyond, we are reviewing our compensation policies and practices to ensure that they evolve appropriately.”

Among their profits, Barclays has made £2.41 billion from its acquisitions. This primarily comes from its takeover of North American bank, Lehman Brothers.

The Stats…

Profits from retail banking increased from £1.28 billion in 2007 to £1.37 billion last year, an increase of 7%.

However, the profits from the bank’s commercial section also fell by 7%to £1.27 billion.

In the wealth management division, Barclays Wealth, profits doubled, increasing from £307 million to £671 million.

Barclays did say however, that it’s lending to both retail and commercial customers increased on 2008s figures.

A letter of reassurance…

Last month, Barclays worries over its financial strength triggered concern over falls in its share prices. In response to this, Mr Varley and Mr Agius published an open letter reassuring investors of the bank’s financial strength.

The letter said that Barclays was well funded and wouldn’t seek financial support from the government, adding that their 2008 profit would be “well ahead” of the market forecasts.

The letter did cause a bit of a stir, in the form of a bounce in the bank’s share prices, but no long-term damage seems to have been done by it.

Even with the letter, agency Moody’s downgraded the bank’s credit rating, in which it said it expected “significant further losses” on credit-related write-downs.

Moody’s also cut Barclays’ long-term debt rating, and their financial strength from a B rating to a C rating, putting further pressure on the bank’s share prices which have fallen over 80% in the last year.

 
What do you think?

Does Barclays have anything to worry about? Is an overall profit loss of 14% mean anything given the current economic downturn? Leave your comments here.

Shadow business secretary Ken Clarke claims that the UK’s economic recovery could take years.

He told the BBC that 2009 is likely to be a “dreadful” year, and that if the Tories win the next election, they faced a “difficult” task.

He also said that Labour are wasting billions on failed policies and markets were “losing confidence” in Prime Minister, Gordon Brown.

Mr Clarke also says he doesn’t expect the introduction of the euro in the UK to become a political issue for a few years now.

Mr Clarke returned to the Conservative frontbench recently after 10 years on the backbench, and has been unsatisfied with the Tory leadership over Europe for years.

He said that labour had failed to get to grips with the financial crisis, resulting in a series of “panic-stricken” measures to try and support the banking system, and therefore he was “gloomy” about the economic prospects for this year.

He added that: “we realised some money had to go in but the money has been pumped in ineffectually and it hasn’t worked.
“So far the crisis is deepening and we haven’t achieved the one key objective to get the banking system working normally again.
“The Conservatives are going to find themselves presiding over a difficult recovery which will probably take a few years when we get in.”

Mr Clarke added that he found the collapse of the pound sterling worrying, but that talk of financial “calamity” with the prospect of the UK having to go cap in and to the IMF for emergency financial support was unrealistic.

David Cameron, leader of the Conservative party has said that there is a real risk of the UK potentially running out of money and having to seek external support.

Describing the euro, the conservatives are said to have a settled policy on Europe which Mr Clarke described as “moderate”, adding that the idea of Britain’s entry into the euro was unlikely to be an issue again in his “political lifetime”.

Nick Clegg of the Liberal Democrats has said there was a “crisis of confidence in Britain PLC”.

He also claimed that only the Liberal Democrats could make the radical changes that needed making in order to address the problems of the economic model that has, over the last 20 years, been swept away.

He said that: “the future is going to look dramatically different than the past in terms of how we run our economy.”

Culture Secretary for Labour, Andy Burnham, said that opposing politicians and commentators should be careful of language and ensure they don’t talk down the economy.

Official government figures finally show that the country is in its first recession since 1991.

Gross Domestic Product (GDP) fell by 1.5% in the final quarter of 2008 after a fall of 0.6% the previous quarter, meaning the official definition of recession has been met.

The figures show the biggest quarter-on-quarter decline since 1980, and a fall of 1.8% compared to figures a year ago.

The figures also sent the sterling to its lowest value in 24 years. Also, the FTSE 100 index fell almost 2% to below 4,000 points.

The figures were produced by the Office for National Statistics (ONS), and showed manufacturing to be contributing most to the economic downturn with a 4.6% contraction.

The only economic area that hasn’t shrunk is agriculture according to the figures by the ONS.

The fall in GDP is steeper than most analysts were expecting.

Alistair Darling said that the figures underlined how much of a challenge the government faced. He said: “It’s going to be a difficult year for families in the UK. We need to go about the problem with a sense of purpose.”

He added that countries across the world also faced recession, and that other governments should act quickly to stimulate their economies.

George Osborne, Shadow Chancellor, said the government was failing to command confidence at home or abroad.

He said: “With unemployment rising faster than anywhere else, and businesses closing every day, these figures are deeply worrying.
“It is difficult to see how we’ll get that confidence with a Prime Minister who blames everyone else for the mess we’re in and refuses to acknowledge any mistakes.”

The crisis started in the financial sector, but quickly spread to the wider economy. Unemployment is one of the biggest casualties, with 1.92 million people currently unemployed. The housing market and retail are all also suffering badly.

Retail figures were however, better than expected in December, growing 1.6% but ONS believe this could mostly be to do with heavily discounted prices.

Chief Economist at ECU Group, Neil Mackinnon said the GDP figures were “grim” and underscored the depth of recession, adding that “there are no green shoots of recovery, no light at the end of the tunnel.”

On average, all recessions in the UK since 1955 have lasted three quarters. However, the past two recessions have lasted for five.

In fact, forecasters believe this recession could stretch to 2010, and may be as severe as the recession in 1991.

Graeme Leach, chief economist at the Institute of Directors said: “the debate on the length and depth of the recession is extremely complex and at this stage one cannot be dogmatic about the outcome.
“The last recession is beginning to look as if it will be more like the 1980s than the 1990s in terms of lost output. We are well into the financial crisis but the economic crisis is only just beginning.”

Gordon Brown has said new measures to be put in place will encourage banks to increase lending levels and protect jobs.

Without the new scheme he said jobs would be lost needlessly as businesses struggle to access necessary funding. But some argue that even the new plans won’t cut it. And the news saw bank shares plummet.

The Prime Minister said: “Good business must have access to credit. It is because of this that we are taking the action to expand lending.”

This is the second major plan set out to encourage banks to lend more money.

A list of policies will be put into place, including a scheme to offer insurance against banks losing more money from the bad debts that started the credit crunch. Also, the Bank of England will be able to buy assets direct from firms.

Despite the new plans, bank shares have fallen badly. The Royal Bank of Scotland has lost 67% of its value.

The government has not said how much the plans will cost taxpayers.

There are four key points to the government’s latest message:
1) Banks will be able to take up government insurance against unexpected bad debts
2) The Bank will be able to buy up to £50billion of assets in companies in all sectors of the economy
3) Extra time will be given for Northern Rock to repay its loans from the government
4) The governments stake in RBS will increase to nearly 70%. The RBS have also said they suffered a loss in 2008, with asset write-downs of up to £20billion.

According to the insurance scheme, banks will agree with the government what they expect to lose form a particular debt, then the Treasury will sell insurance against around 90% the institutions’ additional losses from the debt.

According to Alistair Darling, banks will have to make specific, legally binding agreements to lend more money, to take out the insurance.

Under its new role, the Bank of England will be able to buy up to £50billion of high quality assets, like bonds and loans, from companies.

Vince Cable of the Liberal Democrats said the plans were inadequate and called for the whole banking sector to be nationalised. He said: “The government must bite the bullet on the public ownership and control of the banks to ensure that lending is maintained to sound companies who can keep the economy ticking over in these turbulent times.”

The government has also made changes to its previous bank rescue terms, such as giving Northern Rock longer to repay its loan, after concerns that the repayment timetable given to Northern Rock was forcing it to reduce its mortgage lending too quickly.

The RBS has said it agrees with the Treasury’s plan to swap £5billion of preference shares to ordinary shares and therefore increasing the government’s stake by nearly 12%, reducing the RBS’s annual payments to the government as preference shares have a higher guaranteed rate of return than ordinary shares.

Administrators have cut 450 jobs at Woolworths in order to try and keep the business running. These layoffs have been in support operations at the store at Marylebone Road in London, and the branch in Castleton, Rochdale.

The company, which employs over 25,000 people in its shops alone, and up to 5,000 others in related businesses, have not yet had to cut jobs in the shops themselves, or in their distribution centres, though this is expected after the Christmas period is over.

Since its collapse last month, administrators have launched Woolworths ‘biggest ever sale’, which some have criticised as looking more like a closing down sale, but administrators are claiming it was ‘ongoing’.

Prices are currently reduced throughout the store, with toys and greeting cards offering up to 50% discount in order to try to encourage shoppers into the store, and move stock before Christmas.

Administrators are saying that the shop will remain open until after Christmas. Neville Kahn of Deloitte said: “there is continuing interest in the core Woolworths business and the sale will continue whilst potential buyers finalise their plans for the purchase of the business.”  He added that extra staff had been hired in order to deal with the demand.

Nick Bubb, an analyst with stockbrokers from Pali International, has claimed that the company is trying to “get rid of unsold stock and empty shops…It looks a bit like a closing down sale.”

The famous high street store went into administration just over a week ago, on 26th November. Deloitte have taken over and are said to be in talks with numerous different companies that are interested in Woolworths assets.

However, just last Thursday, famous Dragon’s Den entrepreneur Theo Paphitis, pulled out of buying a share in the chain of stores.

It is still believed that supermarket chains, such as Tesco, Asda, Sainsbury’s, Co-op and Poundland are all interested in investing in some of Woolworths main stores.

The recent credit crunch has had an effect on lots of high street stores. Some other stores are trying to entice customers back into shops by sales before Christmas.

Debenhams, and Dorothy Perkins for example, have held a three-day 20% -off sale events that are soon to end.

Also Marks and Spencer has offered two sales in the last month, in what it claims to be an attempt to give shoppers “a helping hand in the run-up to Christmas.”