One of Japan’s largest banks, Sumitomo Mitsui Financial Group, is in talks with Barclays to invest about Y100bn (£470m) for a small equity stake in the UK bank.

Barclays has been looking to raise as much as £4bn in fresh capital in an effort to shore up its balance sheet without having to launch a lights issue that could leas to aggressive write-downs.

The UK bank has found itself under pressure from regulators and investors to boost its capital reserves. Barclays has been working on a plan that offers stakes to investors, including several sovereign wealth funds.

Barclays’ core Tier One equity ratio is among the lowest in Europe at a bout 5 percent.

The talks between Barclays and SMFG are a rather sensitive topic. It is unclear whether the UK bank will be able to raise the remaining funds it is seeking from other potential investors, according to a person close to the situation.

“Barclays and SMFG are also discussing a business alliance to capitalise on the UK bank’s network in Asia and its strength in wealth and asset management,” a source said. SMFG have declined to comment.

Japanese banks have been looking to expand outside their domestic market and become global players. In January Mizuho Corporate Bank invested £608m in Merrill Lynch.

“The Japanese banks have weathered the sub-prime crisis much better than western banks. Sumitomo Mitsui Financial Group has Y4,400bn in tier one capital, so using about $1bn of that makes some sense (since) it’s difficult to deploy capital effectively in (the domestic market),” said Brett Hemsley, a banking analyst at HSBC in Tokyo.

Barclays has written off £1.7bn so far this year on complex debt securities but analysts say the bank has been less conservative that some of its rivals in marking down assets related to the US sub-prime mortgage meltdown.

Barclay’s shares, which have recently fallen to a 10-year low on fears about its balance sheet and worries that it may dilute existing shareholders by issuing new equity, opened 1 percent higher on Friday at 319p.

Royal Bank of Scotland announced today that 95.11 percent of the shares offered in its £12bn rights issue had been taken up by investors. Nearly 300m shares left with the underwriters – Goldman Sachs, Merrill Lynch and UBS – was to be placed during the day.

This was the largest rights issue seen in European markets. Its success followed an upturn in the bank’s share price last week, which at the start of the week had fallen to 220p, dangerously close to the 200p price for the shares offered to investors on an 11 for 18 basis. The shares had recovered to 259p on Thursday, ahead of the rights deadline on Friday. The shares fell by 5 percent to 245½p on Friday.

The relatively high level of acceptances could help sentiment towards HBOS’s £4bn rights issue. It s offering shares at 275p and on Friday its shares closed at 330¾p, barely above its 12 month low.

RBS who, jointly with Santadar of Spain and Fortis of Belgium, succeeded in winning a €71bn battle to buy Dutch lender ABN Amro last year, is due to announce a trading update on Wednesday ahead of the end of the first half of its financial year.

However, last week when Bradford & Bingley issued its profit warning and restructured its rights issue, RBS announced that the trading guidance it had given at the time of the rights issue in late April was still appropriate for the group and its divisions.

Investors are presently awaiting news on RBS’s plans to make disposals, notably of its insurance business. RBS recently agreed to sell its 50 percent stake in Tesco Personal Finance to the supermarket group for £1bn.

Investors are also heaping pressure on Sir Tom McKillop, chairman, after unhappiness with the group’s performance. They regard the banks determination, despite market conditions, to win ABN Amro as having necessitated the rights issue, which was accompanied by heavy write-downs on the value of complex debt securities.

Banks in the UK recoiled from commercial property lending, leaving investors in the sector facing record margins, rocketing arrangement fees and demands for greater equity.

On Friday a survey published by De Montfort University, recorded the highest ever interest rate margins for senior debt in every sector as well as the sharpest ever annual increase.

Average loan-to-value ratios for almost all sectors were the lowest recorded, and all organisations increased arrangement fees substantially, reaching their highest ever levels by the end of 2007. Since then, most investors report that conditions have not improved for borrowers.

According to the survey, bank lending to the property sector soared to record levels last year, before the market tightened as the credit crisis ended years of easy finance. Debt rose to a record £247bn in 2007, from £215bn in 2006, with around £200bn standing on the balance sheets of the lending banks.

The figure jumped 16 percent last year, partly owing to an estimated £11bn of debt that was intended to be scrutinised but that could not be distributed following the freeze on this market last summer.

RBS and HBOS are among the largest lenders to the marker, although the sector has been filled by banks and building societies of all types in recent years. HBOS, according to its 2007 accounts, amounted for 37 percent of total corporate lending to construction and property clients - around £40.4bn.

According to the Bank of England, Commercial property lending accounts for 38 percent of major UK banks’ lending to private non-financial companies, compared with 19 percent in 1998.

The fall in capital value of more than 20 per cent recorded in parts of the market over the past 12 months has got some analysts worried. There are fears that this is putting pressure on loans, potentially leading to defaults if the market decline continues.

The Bank of England, one of the sponsors of the survey, was relatively sanguine in its most recent financial stability report, saying that although property values may have increased the risk of commercial property loans held on balance sheets, there was no increase in defaults in spite of evidence of breaches of covenants.

With all of the talk about credit crunches, a drying up of liquidity, the real question on the mind of the consumer is – When will markets return to normal? When will my credit card application be accepted? When will my mortgage go through?

The quick answer to that is, nobody really knows! While the initial credit concerns may be leaving the market, money is still tight with many companies retaining as much liquidity as possible just in case they need it themselves.  The Northern Rock debacle was a special situation, but it was brought on by the credit crunch and the reduction in the pool of money available.

Slowly but surely we are seeing more and more companies bring out depressing statements, financial companies are having to write down the value of some assets and shareholders are biting their finger nails awaiting the worst.  Markets are awash with stories that Northern Rock is effectively worthless and Barclays Bank are now in trouble, but it will all blow over in the end.

It could take up to another year for the full effects of the credit crunch to wash through the markets, and the attitude to risk will change for many.  The problem is that we have been here before, everything flying high, business booming and then the risks become greater as people look for a new approach a new angle – and then bang! One problem, such as the US sub-prime mortgage crisis, can make the whole market re-evaluate risk and pull in their horns, having a knock on effect to all areas of business.  Then slowly but surely confidence grows, and the whole process begins again – history is littered with them.

The credit crunch may be over, but the after effects are not and they will be with us for some time.

While each day seems to bring a new tax, increasing taxes and talks of government budget shortfalls, many investors should be checking that they are making full use of the tax efficient investment vehicles on offer.  Whether you are looking at ISAs (Individual Savings Accounts), a self-select pension fund or trusts, you really do need to ensure you are savings as much tax as possible - after all they are designed to help and encourage you to invest!

The government has recently increased the annual limit for ISAs to some £7,200 per person per year, while the rules on contributing to your pension scheme are fairly flexible, with tax incentives to encourage you.  The subject of trusts is a little more complicated and while it would need specific advice for individual cases, there is real potential to protect some of your assets from both income tax and inheritance tax.

It seems amazing that despite the number of high profile tax efficient investment vehicles on offer, many people still tend to invest in their own name, incurring both income tax and capital gains tax (if you make a profit!).  Perhaps it is time that you took a look at your assets and started to plan ahead for the future.  Short term strategies are ok as a stop gap, but they need to be amended at some stage and the recent increase in property prices has opened many peoples eyes to potential tax liabilities in the future.

It is never too late to start, but you really do need to consider the situation carefully.

We have all seen the major crumbling of the already fragile UK / Russia relationship, with tit for tat diplomatic expulsions carried out over the last couple of weeks.  While the main issues revolve around accusations that Russian spies have been operating in the UK, the situation may well go a lot deeper for UK business and future co-operation between the two countries.

The UK business sector is very heavily represented in Russia, with oil giants such as BP and Shell holding major asserts in the country.  Prior to the fall out with the UK government there had been signs of a potential return to old governing styles, with some hand picked assets returned to state control - including an area of the country which involved a BP joint venture.

There have also been a number of laws voted through of late, which limit the control and profits which foreign investors can make in the country.  Initially the Russia government had suggested joint ventures and a more softly softly approach, although this changed when resistance was met.  We have also seen the flexing of the Russian muscles with the closure of one of the main gas lines to Europe - although this was later re-opened.

There is speculation that the authorities are just showing the West how much power the country has, and the fact they are not afraid to show it.  We have seen some gas price rises due to this issue, as nobody is quite sure if it will occur again, and how much control the Russian authorities really have.

While the writing of a Will is a subject which many of us tend to shy away from, it is becoming more and more essential to ensure that your finances are in place should you pass away unexpectedly. 

Wills are not just for the elderly, they should be used as tools to protect your family, friends and partners and ensure that your wishes are carried out.  You would be surprised how many estates end up in court, with friends and family at each others throats!

There is a myth that Wills are complicated affairs and can only be completed by solicitors or lawyers, when in reality they are as complicated or as simple as the writer so wishes.  There are many websites on the internet which will advise you about writing your own Will, what to do, when to do it and how to complete the wording.

There are a number of standard instructions which need to be included in any valid Will, many of which can assist in reducing the high level of inheritance tax levied on estates of today.  It is vital that your tax planning is up to date in order to ensure that those who you wish to benefit will do so, in the most efficient manner.  Discretionary Trustees and gift allowances are some of the more common and simpler ways to ensure that you estate is left in good shape for those left behind.

It seems that the authorities continue to see estates as a great source of extra taxation, and it is highly likely that we will see further relative increases in the tax return from this area of finance.  Ensure that you protect all which you have worked for, even in death, and make your Will as efficient as possible.

As surprising as it may seem, the US stock market has hit a new all time high, against a backdrop of a creaking economy, an over extended housing market and the lowest levels of savings per member of the population for a long time.  So what really is driving the markets, and why?

There are a number of factors which are currently driving the markets which include :-

Corporate Activity

The US corporate sector is currently going through a period of major reorganisation, with many companies becoming the subject of takeover approaches or merger offers.  This has led to a highly speculative attitude from investors, who are determined not to miss out on the “next big deal”.  As price valuations get pushed to the limit, there are many investors who will suffer large losses in due course. 

If each corporate rumour where to occur, we would be seeing takeover and mergers everyday for the next year, and this is just not possible.  As some stage there will be a realisation that share valuations are being pushed to the limit, and it is just not viable for many to be valued so highly.

Feel Good Factor

Many American citizens have seen a major increase in the value of their properties over the last few years, with more and more “releasing equity” from their homes to further extend their investment portfolios.  This has led to a rush of new money into the market, which has squeezed prices higher and higher, with echoes of the 1987 crash - over exuberance and irrational investor behaviour.

Conclusion

There are now real concerns that the market is being primed for a major fall at some stage in the not too distant future.  Recent figures from the economy showed that retail spending fell sharply last month, a move which was discounted by many still chasing the next big takeover.  US average debt is growing, savings rates are at there lowest for some time and many home owners are struggling to cover their rising mortgage payments -  a recipe for success?

To many people in the UK the stock market is nothing more than a rich persons play ground, the place where the city wheelers and dealers make their money, cut each other up and basically leave the rest of us behind, but is this the real story?

Behind that very public face of big bonuses, crazy dealing and a hectic 24/7 lifestyle, the stock market is the most vital component of any economy, the life blood of new business and a massive borrowing facility for the government, to mention just a few areas of importance.  The very public face portrayed in the mass media is something of a sham, and can often hide the real reasons for having a stock market, and the importance to our every day life.

Let us look at the main areas of the stock market and explain exactly how it works :-

Government Funding

Unknown to many, there is an area of the stock market dedicated wholly to the government, offering a way for the authorities to borrow money from investors, in the form of Government Securities.  These investments are as safe as any in the world, because if the country was to go under then we would all be in big trouble.

The government (via the Treasury) borrow billions of pounds a year, in the form over GILTS, which are basically a loan between the authorities and investors, agreeing to pay an interest rate in exchange for the “loan”, and stating a specific repayment date when the capital will be returned.  Even though the authorities receive billions of pounds a year in tax and other payments, very often the timing of these may not coincide with the requirement for immediate funds, so effectively the Treasury are borrowing the funds early, using the future income stream to repay the debt.

New Capital

This is perhaps the public’s main perception of how a stock market should work, raising capital for both new and old businesses perhaps looking to expand, invest in new products, etc.  These stock market offerings normally take the form of shares, although there are also a number debt instruments which companies may use to raise funds.

The share market is the one which hits the headlines, e.g. “Black Monday” when the market fell, or the “Crash” which saw the emergence of a worldwide recession.  These make the headlines, but behind the scenes the stock market has a really important role to play.

Investment

The stock market is basically an arena which allows investors to buy and sell shares in a particular company, whether these are traders (looking to make a quick buck for themselves) or long term investors such as pension funds. 

Pension funds and insurance companies make up the vast majority of the UK stock market investors (and many other markets around the world).  They offer the opportunity for your pension fund to grow through long term investment in the UK economy via a large group of shares, covering all areas of industry.

Conclusion

While many of us may not be aware of it, the stock market actually touches all of our lives every single day of the year.  The importance of the stock market cannot be under estimated, and the vital role which it has to play in both government, business and the lives of investors.