Gordon Brown failed to act on Treasury warnings in 2004 that the government was woefully unprepared to handle the collapse of a financial institution, says a highly critical official report.
An inquiry by the National Audit Office, published on Friday, finds that Treasury officials identified serious flaws in the “tripartite” regulatory structure created by Mr Brown but decided it was not “a priority” to fix the problems.
The International Monetary Fund on Thursday said that the global economy could contract by up to 1 per cent this year, the biggest contraction in 60 years, urging a powerful stimulus effort while criticising the plan offered by the US.
Calling for a co-ordinated rescue, the IMF was critical of the financial stability plan introduced by Tim Geithner, US Treasury secretary . Mr Geithner last week urged the world’s biggest industrialised countries to commit 2 per cent of their total gross domestic product during the next two years in an effort to stimulate the global economy.
He said the IMF should oversee the stimulus programme and increase its own capacity by $500bn to help restore growth in emerging markets.
However, the IMF argued that “essential details are still lacking” from the plan. It said the proposal needed more clarity on how distressed financial assets should be valued and how insolvent banks will be resolved.
In its report to the G20 countries, the IMF predicted a modest recovery beginning next year if countries succeeded in stabilising the financial system and provided sufficient fiscal support. Moreover, credit conditions would need to improve, the collapsing US housing market would need to bottom and lower oil and commodity prices would need to provide an economic cushion.
The IMF called for a co-ordinated global effort to resuscitate the world economy using large stimulus packages while working to prevent deficits from running loose. It warned, however, that hopes of a recovery before the middle of next year are receding and that further recovery delays could cause the downturn to intensify.
“Turning around global growth will depend critically on more concerted policy actions to stabilise financial conditions as well as sustained strong policy support to bolster demand,” the IMF said.
Those recommendations came as the IMF said that advanced economies would suffer “deep recessions” in 2009, with some experiencing their sharpest contractions since the second world war. In the fourth quarter of last year the world economy contracted by an annual rate of 5 per cent.
The fund said that the contraction in the US would push output to levels last seen in the early 1980s, but growth could return by the third quarter of 2010. Europe has been hit especially hard by falling demand and the collapse of housing markets in many of its countries. Japan, meanwhile, is suffering from plunging exports and business investment, weak private consumption and a damaged financial sector, according to the IMF.
Emerging economies are also feeling the ill effects of the recessions hitting advanced countries. The IMF said that some could suffer “serious setbacks” this year as financing is constrained and commodity prices fall.
The fund said that one key to a recovery would be to restore credibility to financial institutions and political actions that eased the “crisis of confidence” that has ensued.
“Restoring confidence is key to resolving the crisis, and this calls for tackling problems in the financial sector head-on,” the IMF said.
In January the IMF slashed its global growth forecasts to 0.5 per cent, sharply raised its estimates of losses from bad assets and said that governments needed to take much more radical action to rebuild shattered financial systems.
http://www.ft.com/cms/s/0/d6611c78-1494-11de-8cd1-0000779fd2ac.html
Prudential Posts '08 GBP1.34 Billion Net Loss; Changes CEO
LONDON -(Dow Jones)- U.K. insurer
Thiam, who was born in the Ivory Coast, will be the first black CEO of any FTSE 100 company.
Prudential also said this year will remain challenging for the company.
"2009 will be a challenging year and we will continue to focus on balancing growth with cash and capital generation," Tucker said.
The company said net loss last year was
The result reflects the same fate suffered by other major insurers like
Prudential's short-term investment losses in 2008 totaled
However, its operating profit, which doesn't factor short-term investment returns, was at
The group's operating profit was higher than the
Tucker said: "These results represent a very strong absolute and relative performance in quite exceptional circumstances. Our focus has remained resolutely on delivering value over volume, while carefully managing our risks, capital and cash."
"Our geographic diversification, distribution strategy, product mix and disciplined approach all mean we can focus on the most profitable opportunities in the pre and post-retirement sector," Tucker said.
Under International Financial Reporting Standards, the company posted a net loss of
At
Prudential said its capital position remained strong, with a capital surplus of
Analysts focused on and were encouraged by the rise in operating profit.
Shore Capital analyst Eamonn Flanagan said the company posted "powerful results." He noted that the sale of a
With Prudential raising its assumptions for bond defaults, Flanagan said the company could "withstand defaults in lines with the Great Depression every year for the remaining life of the book." Flanagan kept his buy rating.
Drops Out Of AIA Bidding
In a briefing, Tucker said Prudential has quit the auction process to acquire AIA, the Asian operations of troubled U.S. insurer
"We did not submit a bid in the process. Our view was that we could not get to the value criteria that we had in place," Tucker said. "Going forward, in terms of acquisitions, we will continue to look for opportunities."
He didn't comment on AIG's asking price for AIA, though previous reports said that price could be between
Tucker said slowing exports and weaker economic growth among Asian markets pose challenges to its business there in the short term but added the company remains positive over the medium term.
Panmure Gordon analyst
"The one positive is that he is being replaced by the very strong Tidjane Thiam," Cornes said. He kept his buy rating and target price of 480 pence on the stock.
Tucker, 51, recounted the growth of the company in recent years but didn't elaborate why he decided to leave the company. "It was a very tough decision for me...I've put in place, in my view, many of the things that I set out to do when I first came in," Tucker said.
He said he is still considering what he will do next after stepping down.
Tucker has been with Prudential for 25 years and has been CEO for more than four years. Thiam joined Prudential in March last year from Aviva, where he was an executive director and CEO of Aviva Europe.
Thiam said he feels "privileged" to succeed Tucker. "In the meantime, I'm still the CFO, I have a job which keeps me busy in these markets and that's what I intend to focus on in the next six months," he said.
http://money.cnn.com/news/newsfeeds/articles/djf500/200903190626DOWJONESDJONLINE000508_FORTUNE5.htm
London will remain key financial centre as light-touch regulation ends, Turner insists
Setting out his vision for change, the FSA's new chairman issued a stark warning that regulation will become far more stringent. However, this tough new line will not harm London's position as a premier financial centre, he claimed, because regulation worldwide will become more rigid.
In a statement intended to counter threats from hedge funds and other financial institutions that they may relocate if the UK becomes unattractive, he added: "We are not going to fall into the trap that we did in the past of trying to get a minor competitive advantage by making regulation a little lighter than elsewhere. The disadvantages of getting it wrong are hugely bigger."
Lord Turner made light of a potential power struggle between the FSA and the Bank of England over which institution will take the lead regulating banks, saying where the responsibility for specific duties falls "is the least important thing in this debate".
He added that his proposals – which will see banks holding much more capital and could force hedge funds and other "shadow banks" to submit to regulation – would be in tune with international change. A key proposal is for a new European body which will oversee national regulators. Alistair Darling, the Chancellor, has welcomed such a move, but observers said that the difficulty will lie in how much any cross-border body will be able to dictate to individual countries.
Michael Raffan, a partner at law firm Freshfields, said Lord Turner intended his audience yesterday to be "the international regulatory community". This was in the hope that by setting out detailed proposals for change, the FSA can set the agenda on banking supervision at upcoming negotiations by the G20 countries and Basel committee.
Rachel Kent, of Lovells, said that 20 of Lord Turner's 38 recommendations would require international agreements. John Tattersall, of PricewaterhouseCoopers, said despite his radical rhetoric, Lord Turner had "carefully crafted" his report so that it would not clash with international initiatives.
Basel is due to publish new guidelines on a range of issues including minimum capital standards later this year.
Lord Turner said there would be major change for foreign banks with subsidiaries in the UK. The system of allowing foreigners to "passport" so that branches in Britain are overseen by their home regulator will be curtailed. The FSA could force the local entity to hold a specific level of capital, or may insist it accepts direct FSA regulation, Lord Turner said.
He warned hedge funds that if the FSA believes they are a systemic risk, it will either squeeze the UK-based part of their business, or will put pressure on their offshore domain for information.
If the FSA deems something unacceptably risky in any financial institution, it will force it to hold so much capital that it makes the action prohibitively expensive. The FSA will also pay far more attention to the "macro prudential" big picture risks when looking at individual companies, Lord Turner said.
He ducked making a decision on whether to directly regulate products, saying the regulator would consult on whether to cap mortgage loans to value until later this year.
LONDON : A record number of Britons signed up for unemployment benefits last month, average pay shrank in January for the first time since at least 1991 and a Bank of England policy maker said he feared things would only get worse.
The official data released Wednesday also showed an internationally recognized measure of unemployment surpassed the two million mark in January, taking the jobless rate to 6.5 percent — the highest level since 1997.
A Bank of England policy maker, David Blanchflower, said he feared that one in 10 Britons could be out of work by the end of this year.
"The worry is that this is all going to get much worse and we need to do something about it," said Mr. Blanchflower, a member of the Bank of England's Monetary Policy Committee.
Many of the grim figures were much worse than experts had expected, suggesting that the recession in Britain could push even more people out of work than previously feared and piling pressure on the Labor government ahead of an election due by mid-2010.
"The worst jobs report we've ever seen," said George Buckley, chief British economist at Deutsche Bank.
The Office for National Statistics said the claimant count rose by 138,400 in February — nearly double some forecasts and the biggest spike since comparable records began in 1971. The rate hit 4.3 percent, the highest level since 1999.
Soaring unemployment is also having a big impact on pay. In January, earnings were 0.2 percent lower compared with a year earlier, the first drop since records began in 1991.
The wider International Labor Organization measure of unemployment rose by 165,000 in the three months to January, to 2.029 million, the highest number since the governing Labor Party came to power in 1997.
Analysts say the labor market is only going to get weaker as credit-starved companies lay off more workers.
"It's clear that the data is absolutely dreadful," said Amit Kara, a British economist for UBS "Going forward, we expect unemployment to rise well in excess of three million through next year."
Banks have eliminated thousands of jobs since the credit crunch began, while the pre-Christmas collapse of Woolworths resulted in 27,000 people losing their jobs at that retailer.
Unemployment data tend to precede developments in the economy by about six months because it takes time for companies to react to falls and rises in demand.
Six months ago, the British economy had only just started to shrink, before the contraction accelerated to the sharpest drop in output in nearly 30 years in the three months to December.
The economy is expected to shrink by a similar amount of around 1.5 percent in the first quarter of this year and keep contracting for some time to come.
Unemployment rates had already jumped well above 8 percent in parts of northern England in the three months to January and the rate hit 7.5 percent in London, the country's financial hub
The Federal Reserve on Wednesday stunned investors by announcing plans to buy $300bn of US government debt, rocking the bond market and the dollar.
In a further display of aggression, the Fed also said it was more than doubling its purchases of securities issued by housing giants Fannie Mae and Freddie Mac to $1,450bn in a bid to bring down mortgage rates and support the housing market.
March 18 (Reuters) - The Bank of Japan on Wednesday raised its buying of government bonds by 29 percent while keeping interest rates just above zero, as the global financial crisis puts Japan on course for its longest slump since World War Two.
The central bank issued the following statement after a two-day policy meeting:
1. At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0.1 percent.
(Voting for the action: Mr. M. Shirakawa, Mr. H. Yamaguchi, Mr. K. G. Nishimura, Ms. M. Suda, Mr. A. Mizuno, Mr. T. Noda, Mr. S. Nakamura, and Mr. H. Kamezaki. Voting against the action: None.)
2. Fund raising in financial markets for funds over the fiscal year-end has mostly been completed, but it is likely that the markets will remain under stress in the new fiscal year given the severe financial and economic conditions described below. In light of this situation, the Bank judged that continued provision of substantial liquidity is required to ensure stability in financial markets. To put this into action, the Bank decided to further utilize its long-term funds-supplying operations by increasing its outright purchases of Japanese government bonds (JGBs), thereby facilitating smooth money market operations. The amount of outright purchases of JGBs will be increased by 4.8 trillion yen to 21.6 trillion yen per year (1.8 trillion yen per month) from 16.8 trillion yen per year (1.4 trillion yen per month), effective from this month.
3. Exports have been decreasing substantially reflecting the deterioration in overseas economic conditions, and domestic demand has become weaker against the background of declining corporate profits and the worsening employment and income situation in the household sector. Financial conditions have remained tight on the whole, despite improvements in issuing conditions for CP and corporate bonds. Under these circumstances, economic conditions have deteriorated significantly and are likely to continue deteriorating for the time being. Meanwhile, CPI inflation (excluding fresh food) has recently moderated reflecting the declines in the prices of petroleum products and the stabilization of food prices, and, with increasing slackness evident in supply and demand conditions, will likely become negative. The Bank's baseline scenario through fiscal 2010, in which expectations of both medium- to long-term growth and inflation are assumed to remain generally unchanged, projects that the economy will start recovering from the latter half of fiscal 2009, with price declines abating as global financial markets regain stability and overseas economies move out of their deceleration phase. Although this scenario offers the prospect of the economy returning to a sustainable growth path with price stability in the latter half of the projection period, uncertainty is high.
4. With regard to risk factors, much depends on global financial conditions as well as developments in overseas economies, and attention will need to be paid to the downside risks posed to economic activity. In addition, there is the risk of a further weakening in domestic private demand if firms' medium- to long-term growth expectations decline and pressures to adjust capital stocks and employment increase. If financial conditions should tighten further, pressures acting to depress economic activity from the financial side may become more marked and the adverse feedback loop between financial and economic activity may intensify. Turning to prices, there is a possibility that the inflation rate will decline further if downside risks to economic activity materialize or commodity prices fall. In this case, the risk of a decline in the medium- to long-term inflation expectations of firms and households warrants attention.
5. In order to support the economy, the Bank has taken various monetary policy actions since last fall in three main areas: reducing the policy interest rate; ensuring stability in financial markets; and facilitating corporate financing. In addition, to secure stability in the financial system, the Bank resumed its purchases of stocks held by banks, and decided yesterday to explore a framework to provide subordinated loans to banks. The Bank will continue to exert its utmost efforts as a central bank to facilitate the return of Japan's economy to a sustainable growth path with price stability. (Compiled by Leika Kihara)
http://www.reuters.com/article/marketsNews/idUST32346420090318
FRANKFURT, March 17 (Reuters) - Concerns about any euro zone member defaulting on its debt are unfounded and it would make no sense for any country to split from the area, European Central Bank Governing Council member Axel Weber said on Tuesday.
In the text of a speech to be delivered at a conference in Eltville, Germany , Weber said the 'no bailout' clause in the European Union treaty was vital to prevent irresponsible behavior, but in an extreme emergency, help could be provided.
'As regards recent speculation about a potential EMU split-off, I am convinced that -- apart from the absence of any legal framework for this -- it would make no sense economically for any member state to use an exit option,' he said. 'This is due to the huge costs that such an exit would entail.'
Weber also noted that increased costs for government debt in some euro zone countries had sparked speculation about defaults, but said: 'Any concerns in this regard are unfounded and only purely hypothetical.'
Speculation has grown over the last month that Germany and other European countries might club together to aid euro zone states like Ireland and Greece, whose finances have deteriorated sharply during the global crisis.
Highlighting Ireland's woes, the premium investors demand to hold 10-year Irish government bonds rather than safer-haven euro zone benchmark German Bunds widened to a euro lifetime record of 286 basis points earlier this month.
Weber said any such aid would be problematic and would have to carry conditions.
Tim Geithner, America’s beleaguered Treasury secretary, faces a critical test of his credibility when he unveils a much-awaited plan to take toxic assets off bank balance sheets – in an announcement expected in the coming days.
Mr Geithner, whose initial announcement last month on the troubled asset purchase plan disappointed the market, has become the target of criticism in Washington and on Wall Street, with some questioning whether he can deliver.
Speaking on condition of anonymity, senior Democratic figures questioned whether Mr Geithner has the credibility with the markets and Capitol Hill to push through a new request for funds. “The more time passes, the more convinced I am that Tim Geithner is becoming a liability for the administration,” said one Democratic lawmaker.
Analysts say President Barack Obama would face steeper odds persuading Congress to authorise more money to recapitalise the banking sector if Mr Geithner was the one making the request. Mr Obama included a $250bn (€192bn) financial sector bail-out item in the budget he announced last month implying the administration will need up to $750bn more in troubled asset funds.
“I don’t think Tim Geithner will last beyond June – he has no credibility with the markets,” said Chris Whalen, managing director of Institutional Risk Analytics, a financial research group. “Given what we already know about the toxic asset purchase plan, I very much doubt he is going to turn this situation around.”
Mr Geithner, previously the head of the Federal Reserve Bank of New York, was initially hailed for his knowledge of the complex financial issues at the centre of the crisis – and for being a known quantity on Wall Street.
Treasury officials could not be reached for comment. But defenders of Mr Geithner, who remains the only official at the Treasury department to have been confirmed by the Senate, say he is being unfairly singled out as the lightning rod for the growing public anger on Wall Street’s misuse of emergency taxpayer funds. They say the Obama administration would have a difficult time requesting new bailout funds from Congress, whoever the Treasury secretary was.
“I am quite certain that Tim Geithner has the full backing of the president and will continue to have it,” said Roger Altman, a former senior Treasury official in the Clinton administration. “The main question is can anybody, including President Obama himself, persuade Congress to give new money in this climate?”
Mr Geithner is also attracting much of the blame for controversies over the misuse of funds that have already been disbursed – some of it under the Bush administration. On Tuesday, Richard Shelby, the ranking Republican member of the Senate banking committee, blamed Mr Geithner for the administration’s failure to prevent executives at AIG from paying out $165m in bonuses.
On Monday, Mr Obama instructed Mr Geithner to explore every avenue to claw the bonuses back. AIG has received more than $160bn in public funds in the past four months.
Jim Sarni, portfolio manager at Payden & Rygel, a US investment management firm, said the real issue was the removal of toxic assets from financials and restoring confidence in banks, which policymakers were not yet doing.
Additional reporting by Michael Mackenzie and Aline van Duyn in New York
http://www.ft.com/cms/s/0/ca89a806-1314-11de-a170-0000779fd2ac.html
The insurer told shareholders today that its net loss was £541m in the 12 months to December 31 compared with £108m as its losses from investments rose to £6.6bn from £2.6 bn. Friends Provident, which has surplus capital of £800m, is cutting costs in an effort to tackle a decline in sales.
The company added that underlying profit before tax was £420m on an European embedded value basis, compared with £16m in 2007, the insurer said. That beat the £394bn estimate of analysts surveyed by Bloomberg News. EEV includes assumptions for long-term investment returns.
The insurer, which last year announced plans to cut £40m of costs by the end of this year, halved its full-year dividend to 3.9p from 8p in 2007.
Friends Provident plans to distribute its 52pc stake in F&C Asset Management, the loss-making asset manager, to shareholders by the middle of this year after failing to find a buyer.
The insurer last year scrapped the sale of Lombard International, a wealth-management unit, after talks with private equity firm CVC Capital Partners broke down.
