Senior executives at troubled banks have been targeted by the City watchdog for close scrutiny over the decisions they made in the run-up to the crisis, the chief executive of the Financial Services Authority warned on Thursday.
Abandoning the principles-based approach to financial regulation that the FSA championed before the crisis, Hector Sants outlined a more interventionist policy warning that people should be “very frightened” of the City watchdog.
Japan on Thursday threw its weight behind US efforts to ensure next month’s G20 summit focuses on the need for immediate co-ordinated action to support the world economy rather than long-term efforts to improve financial sector regulation.
In an interview with the Financial Times that highlighted the growing rift in the G20 ahead of Friday’s pre-summit meeting of finance ministers, Kaoru Yosano, Japan’s finance minister, said he understood the European-led push to focus on tightening financial regulation. But he suggested such issues appeared cosmetic compared to more pressing economic problems.
EDINBURGH -- A sharp exchange at a conference here showed that the U.K.'s financial regulator and investors are still keen to blame each other for the country's collapsed banking system and subsequent recession.
But Hector Sants, chief executive of the Financial Services Authority, and Anthony Bolton, a revered figure in U.K. investment circles, at least settled on the terms of the debate: Who was in a better position to identify problems when something could have been done about them?
In a speech Mr. Sants delivered to some of the U.K.'s largest institutional investors late Wednesday, he criticized them for failing ...
http://online.wsj.com/article/SB123690232452013491.html?mod=googlenews_wsj
ECB Approaches Zero Rates by Stealth With New Weapon
March 12 (Bloomberg) -- European Central Bank President Jean-Claude Trichet’s new weapon to battle the recession is taking him closer than it seems to zero interest rates.
Trichet is allowing the ECB’s deposit rate, which lenders earn on overnight deposits with the central bank, to usurp the benchmark refinancing rate and become the main driver of short- term borrowing costs. At just 0.5 percent, the deposit rate matches the Bank of England’s key setting and is only a step away from the zero-to-0.25-percent range the Federal Reserve uses.
That is pushing interest rates for banks down, helping Trichet answer critics who accuse him of not doing enough as the euro-region economy sinks into its deepest recession since World War II. The deposit rate is “very, very low,” Trichet said three times in an hour at a press conference on March 5.
He “is implicitly admitting that the deposit rate has now become the key barometer of the ECB’s policy,” said Nick Kounis, chief European economist at Fortis in Amsterdam. “The ECB has become more and more comfortable in pointing that out, not least because it’s been accused of keeping interest rates too high.”
The euro overnight index average, or Eonia, fell to 0.85 percent yesterday after the ECB’s latest rate cuts took effect -- about 0.7 percentage point below the 1.5 percent benchmark rate. Overnight deposits dropped to 56.3 billion euros, the lowest amount since Oct. 8.
Unlimited Cash
The ECB’s decision to offer banks unlimited amounts of cash, announced on Oct. 8, has culminated in the deposit rate setting the new de facto cost of short-term money. The measure removed the need for banks to borrow in the money market to meet their reserve requirements.
Banks have been reluctant to lend to each other since Lehman Brothers Holdings Inc. went bust on Sept. 15, preferring to stash excess money with the ECB instead of taking the risk.
As demand dried up, interbank-lending rates dropped toward the deposit rate. The Eonia rate averaged 106 basis points above the deposit rate in the seven years before the ECB started providing unlimited liquidity in October. Since then, the gap has shriveled and yesterday stood at just 35 basis points.
Unlimited cash “results in refinancing costs for banks well below the current benchmark interest rate,” ECB council member Axel Weber said on March 5. “We expect banks to pass this on to consumers and companies to stimulate the economy.”
Boost for Economy
The overnight Eonia rate “is a very important starting point for all market expectations,” said Julian Callow, chief European economist at Barclays Capital in London. “Any further reduction in Eonia expectations would lower Euribor rates and so be a considerable benefit for the real economy.”
The euro interbank offered rate, or Euribor, that banks say they charge each other for six-month loans dropped to a record low of 1.79 percent today. Market rates of the same maturity traded at 2.07 percent in the U.K. and 1.90 percent in the U.S.
Trichet hasn’t ruled out further rate cuts. The ECB has “not decided ex-ante that the present level was the lowest,” he said during a press conference in Vienna today. Still, “we are at very low rates.”
Officials are hesitant to go much lower. There is “no reason to see the refinancing rate below 1 percent,” Weber said on March 10. “I also see a problem with lowering the deposit rate to zero. I would prefer to leave it at 0.5 percent.”
That reticence may be linked to Japan’s experiment in the 1990s, when it lowered its key rate to zero to revive its economy in what became known as the “lost decade.”
‘Excessively Low’
Japan shows that keeping rates too low for too long “will cause interbank trading to run dry, despite the ECB’s efforts to revive it,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt.
Some ECB officials are concerned that too-low market rates will become counterproductive because they will sap banks’ returns and give them less incentive to trade with each other. That would undermine the ECB’s aim to revive interbank lending through its unlimited liquidity operations.
“If we had excessively low interest rates, why would banks start lending to each other?” ECB council member Yves Mersch asked March 10. “It would be much safer to put their excessive funds into the central bank rather than engage in the interbanking market.”
The ECB has cut its main refinancing rate, which is used as a benchmark in money-market operations, by a total of 2.75 percentage points since early October.
Not so Different
That’s still well above the key rates of the Fed and the Bank of England, which have started buying assets such as commercial paper and government bonds to ease credit tensions and boost their countries’ economies.
So far, the ECB is focusing its efforts on providing unlimited liquidity to banks and said on March 5 it will provide these funds until at least the end of the year.
“With the extension of providing unlimited liquidity, the ECB committed to keep the overnight rate very low for the foreseeable future,” said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc in London.
That is allowing Trichet to argue “that the ECB does not have such a different monetary-policy stance from the Fed and Bank of England,” said Gilles Moec, an economist at Bank of America Merrill Lynch in London.
He is “driving home the point that the ECB is doing much more than people think.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLY.DItPRkCo&refer=home
The Swiss franc plunged to its lowest level so far this year on Thursday after the Swiss National Bank said it was set to make purchases in the foreign exchange market to halt the currency’s rise against the euro.
The Swiss franc’s haven status has been heightened by the recent market turmoil and seen it rise 9 per cent on a trade-weighted basis since July and come close to its record high around SFr1.43 against the euro in recent weeks.
Investors flocked to sell government bonds to the Bank of England as it launched an unprecedented programme to expand the money supply and breathe new life into the economy.
The Bank was overwhelmed with offers to sell the bonds by some of the country’s biggest investment groups in an early sign of success over its historic quantitative easing move.
BT is to freeze the pay of over 100,000 staff this year
BT Group has frozen the pay of its entire 100,000-strong UK workforce — but has yet to decide whether senior executives will get their bonuses.
The block on pay rises, which comes after a collapse in the telecom group’s profits and share price, makes it the latest in a string of private-sector employers to freeze pay in response to the economic downturn.
BT said: “This has not been an easy decision, but, given the tough economic climate, it is important BT meets these challenging times head on.”
The company said that its senior executives would have their pay frozen, but it has not been decided whether to pay their bonuses this year.
Ian Livingston, the chief executive, stands to make more than £6 million in bonuses this year if performance targets are met. This is on top of his basic salary of £850,000.
BT said: “Regarding bonuses, that is still being decided. However, if any bonus payments are made, they will be substantially lower than in previous years — and in many cases won’t be paid at all.”
BT’s shares have fallen by more than 70 per cent in the past year to 71.4p amid investor concern about a collapse in profits and the company’s rapidly expanding pension-fund deficit. The company announced last year that it would cut 10,000 jobs after profits fell by 80 per cent to about £113 million in the three months to December 31.
BT was forced to write off about £1.3 billion last year because of the poor performance of its Global Services division, which provides information technology services.
The company is also under pressure from the worsening deficit in its pension fund. The fund’s surplus of £2 billion early last year had become a deficit of £1.7 billion at the end of December because of the falling value of equities. Analysts fear that the deficit has grown even larger since December and that BT will have to make substantial cash payments to rebalance the fund.
In announcing the pay freeze, BT said that it hoped that its trade unions would support the move, but the decision prompted anger from union leaders.
Andy Kerr, the deputy general secretary of the Communication Workers Union (CWU), said: “A pay freeze is wholly unacceptable. BT is still making substantial profits and a pay cut in those circumstances is an insult to staff. The CWU will be considering our formal response to BT’s imposition of a pay freeze early next week.”
BT joins companies such as National Express, Tate & Lyle, bmi and Virgin Atlantic in imposing pay freezes this year. Others, such as British Airways, are in negotiations with unions to introduce freezes.
The CBI last week said that it expected the “overwhelming majority” of its member companies to freeze pay this year.
A survey by EEF, a trade body that represents manufacturers, found that two thirds of companies had frozen pay or were considering doing so.
However, BT admitted last month that its non-executive directors will enjoy a pay rise of 50 per cent this year. The basic payment for non-executive directors, who work only about 20 days a year, has been raised to £60,000.
BT is not the only telecoms group hit by the recession. Vodafone said recently that it would cut 500 jobs in the UK and reduce costs by £1 billion. Cable & Wireless and Virgin Media are also cutting costs.
http://business.timesonline.co.uk/tol/business/industry_sectors/telecoms/article5890128.ece
Pound fails to help exports as demand for UK goods collapses
The much-vaunted boost to UK trade from the devalued pound has yet to materialise, according to the latest official figures. Despite a 25 per cent slide in the value of sterling since mid-2007, the UK's trade deficit widened by more than expected in January as exports to non-European Union countries fell sharply. The deficit in goods and services grew to £3.6bn, from a shortfall of £3.2bn in December. The deficit in goods, at £7.7bn, is up by £500m on the previous month.
Chinese exports slumped 25.7 per cent in February, much higher than analysts had expected, as the global economic crisis began to take its full toll on the country’s export sector.
However, the government also announced a strong increase in fixed asset investment in the first two months of the year, which economists said was a sign that fiscal stimulus measures were starting to have an impact.
ITV’s board is discussing a possible share issue after taking informal soundings from investors about raising capital to ease its £730m debt burden.
But some leading shareholders say they would only support such a move if Michael Grade stepped down from his position as executive chairman and worked alongside a new chief executive.
