The great interest rate rip off part 1

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Barclays boss predicts credit markets recovery - Telegraph

 

Bob Diamond, the chief executive of Barclays' investment banking arm, has expressed confidence that the leveraged finance market will recover within the next two-three months, opening the door to a resumption of the private equity buyout spree.

His comments come as the bank unveiled a 12pc rise in first-half profits, which were boosted by yet another strong performance at Barclays Capital, the division he heads up.

Large private equity takeovers, including the likely £7bn acquisition of Cadbury's US beverages business, have been put on hold because volatility in the credit markets mean that banks like Barclays are putting much tougher conditions on their loans.

But Mr Diamond said this morning: "We would expect that the [leveraged finance] market will hit more normalised volume levels over the next two-three months."

He explained that while it would take some time for the difficulties in the US sub-prime market to be resolved he was "more sanguine" about leveraged finance, which most private equity firms rely on to fund buyouts.

 

Buzz word bingo anyone??? Spin to try to keep share prices up?

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BBC NEWS | England | South Yorkshire | Struggling Dixon Motors sacks 800

 

Dixon Motors - one of the UK's biggest car dealerships - is to close more than half of its network of franchises with the loss of 800 jobs. The Doncaster-based company went into administration last week, blaming a sharp fall in sales.

Administrator BDO Stoy Hayward has sold 19 of Dixon's 46 franchises to the UK's largest dealership owner, Pendragon.

The deal saves the jobs of 600 of the 1,400 staff in Yorkshire, Lincolnshire, Nottinghamshire and Lancashire.

However, 27 of the company's sites, including the head office in Doncaster, are to close with immediate effect.

Dixon's franchises include Citroen, Ford, Peugeot, Nissan, Renault and Vauxhall, selling and leasing cars.

 

The booming economy.....

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BBC NEWS | Business | Norwich Union in 10% premium hike

 

Norwich Union is to raise domestic property insurance premiums by an average of 10% from next week, the BBC has learned. The firm, the UK's largest household insurer, said that the hike was not linked to the recent floods and that the timing was coincidental.

Norwich Union insures about one in five homes in the UK.

On Thursday the firm warned that the summer floods could cost it about £340m in payouts to customers.

A spokesman said the firm had been assessing the levels of its premiums for some time.

Repair cost rise

Norwich Union's parent company Aviva has told investors that the recent floods in the south of England would cost it £165m.

Earlier it estimated that floods in the north of the country would lead to a bill of £175m.

The company said that flood risk was just one element of why they had reassessed premiums.

More home improvement, increasing numbers of bathrooms in homes, and expensive flooring had raised the cost of repair work, the company said.

 

10% hike, again slightly higher than the 2% inflation target the BoE is aiming for, can we expect tomorrow Mystic Merv to give Norwich Union both barrels on behalf the consumer or just stay silent, my monies on he stays silent.

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BBC NEWS | Business | Oil price 'threatens US economy'

 

Sustained oil prices close to $80 a barrel could hit US economic growth, Energy Secretary Sam Bodman has said. The US economy has never faced such high prices for "an extended period," Mr Bodman warned.

There is concern about whether oil supplies can meet global demand and Mr Bodman urged oil producing nations to increase output to avoid shortages.

Oil prices have fallen back slightly after hitting a record intraday high of $78.77 a barrel on Wednesday.

Sustainability fears

Analysts say that a price rise above $80 is inevitable, raising concerns about the effect of energy costs on inflation.

Higher oil prices drive up the costs for businesses who pass those increases on to customers. And with the price of petrol at the pump close to $3 a gallon, it is feared that higher fuel bills will begin to dent consumer spending.

 

No need to panic the magical interest rate will solve all the worlds economic problems.

 

I'm surprised it's not been used to bring peace to the middle east yet or been used to find Bin Laden.

 

It's a good job there's not been any huge cost to peoples living expenses otherwise the economy could be in dire trouble, just think what might happen if someone had raised borrowing costs by 21% in a year.....

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FT.com / World - Trichet signals EU rate rise next month

 

The European Central Bank on Thursday signalled the cost of borrowing in the eurozone would rise again soon, with most economists tipping on a now-traditional quarter-point rise in the main rate to 4.25 per cent in early September.

But the central bank for the 13-member currency bloc made no comment on the trajectory of monetary policy beyond next month, leaving the door open to more rate increases or to a pause as past moves stem the speed of price rises.

Jean-Claude Trichet, the ECB president, said “strong vigilance” was essential to guard against excessive inflation, a term that has heralded a modest rate rise the following month ever since the bank started tightening in late 2005.

Separately, Christian Noyer, the governor of the Bank of France and an ECB board member, fiercely defended the primacy of the ECB’s inflation-busting mandate, saying it was the “fruit of experience.”

In a scarcely veiled rebuke to Nicolas Sarkozy, France’s president, who has been calling for a looser monetary regime, Mr Noyer said many countries had been tempted to stimulate economic growth by pursuing a more expansive monetary policy.

“All these attempts have failed,” he wrote in a introductory letter to the Bank of France’s annual report addressed to Mr Sarkozy. “Inflation increased, sometimes to very high levels, without employment improving.”

 

Far better to let the central banks screw up the global economy instead, at least politicians are elected by the people.

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FT.com / Markets - Global overview: Bargain hunting lifts equities

 

Signs of continuing trouble in credit markets were ignored by equity investors on Thursday, who took the opportunity to snap up bargains amid volatile trading conditions.

Taking their cue from Wednesday’s strong rebound on Wall Street, Asian and European equity markets ended broadly higher.

 

Clever investors or lambs to the slaughter?

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FT.com / MARKETS / Commodities - Oil resumes climb amid volatile trading

 

Oil rebounded on Thursday after retreating from record levels during the previous session while wheat prices rose on strong overseas demand for US wheat.

Nymex September West Texas Intermediate rose 69 cents to $77.22 a barrel while ICE September Brent gained 77 cents at $76.12 a barrel.

Crude oil prices remained highly volatile after hitting a record $78.77 in the previous session, prompted by a huge fall of 6.5m barrels in US crude stocks as refineries stepped up production of petrol and heating oil.

However, Wednesday’s surge proved short-lived as profit-taking set in. Speculators had built record levels of long positions – betting on price appreciation – but hedge funds took advantage of WTI’s rise to book profits.

Capital Economics, the research group, said there was no need for investors to panic even if oil reached $80.

“The last few years have shown that surging oil prices are a much weaker headwind for economic activity than many had feared,” said Julian Jessop, its chief international economist. “Oil is also less important than it used to be. This reflects greater energy efficiency, the development of alternative energy sources, and the increasing share of less energy-intensive activities [notably services] in overall output,” he added.

Capital Economics expects oil to drop back below $70 a barrel in the autumn as the hurricane and US driving seasons come to an end.

 

So the roulette wheel is spinning again, where it stops nobody knows.

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American Home Mortgage Throws In The Towel - Forbes.com

 

Although Thursday began on a hopeful note for American Home Mortgage Investment, by the close of business, the business seemed to have closed.

Employees of the Melville, N.Y.-based mortgage real estate investment trust apparently received an email from Michael Strauss, the company’s chairman, at a little after 3 p.m., stating that their last day of employment would be Friday. A copy of the email was provided to Forbes.com by an employee who asked not to be identified. Reached by telephone, another employee said, "We are no longer in business as of this afternoon."

“It is with great sadness I announce today that American Home Mortgage has been forced to close. Unfortunately, the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that our business is no longer viable,” Strauss wrote.

 

Is all hell about to break loose? However none of this is the central banks fault it's everyone's but there's.

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Unilever to cut 20,000 jobs - Telegraph

 

Unilever, the world's third-biggest food and consumer goods company, unveiled plans on Thursday to cut 20,000 jobs and sell slow-growing businesses in a bid to speed up its recovery and fight surging food costs.

Shares in the Anglo-Dutch group, whose 400-plus brands include Dove soap, Knorr soups and Sunsilk shampoo, ended the day up 62 euro cents, or 4.1pc, at 15.66 euros.

Unilever said that the restructuring would affect about a tenth of its 180,000-strong workforce. The cuts would be mainly in Europe and would be implemented over four years.

 

One of the best ways to raise your share price announce a restructuring and announce massive job cuts, the City loves it.

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Household insurance premiums rise by 10% - Times Online

 

Two of Britain’s leading insurers are to put up the cost of household insurance by an average of 10 per cent after two months of devastating floods.

Norwich Union, the country’s biggest insurer with one in five homes on its books, will bring in the price rises from Monday in response to the worst floods to have hit England in 60 years.

Lloyds TSB also said yesterday that it expected to increase home insurance premiums for all customers by about 10 per cent.

The higher premiums will affect existing Norwich Union and Lloyds TSB customers who seek to renew their buildings and contents insurance policies, as well as new customers. The price increases will apply to all customers, and not just those hit by the recent flooding.

 

A spokeswoman for Aviva, Norwich Union’s parent company, said: “We had the premiums under review before these events. There will be an increase in premiums as the flooding is one of the elements causing claim inflation. The increase will on average be 10 per cent.”

Direct Line and Churchill, two other leading household insurers owned by Royal Bank of Scotland, told The Times that they would also be putting up the cost of their household insurance policies, but declined to say by how much.

 

Insurance is there to claim if needed, people claim the insurance companies don't like it and they put up the prices and all the increases are above the 2% inflation target. Is this more to do with keeping the profit margin up?

 

Better punish the consumer again with another interest rate rise, that will teach them to take about inflation busting insurance.

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German bank reveals £12bn exposure to sub-prime mortgages - Times Online

 

The international financial system suffered fresh convulsions yesterday as it emerged that Germany’s IKB Deutsche Industriebank, one of the country’s leading small business lenders, has about £12 billion of exposure to high-risk sub-prime mortgages in the United States.

The extent of IKB’s exposure came to light three days after it issued a surprise profits warning from undisclosed losses on bonds backed by American sub-prime home loans, which only ten days earlier the lender had said posed no risk. Given the recent plunge in sub-prime bond valuations, analysts said that IKB’s exposure to high-risk home loans could easily lead to $5 billion of losses.

The German Government, fearful of the impact that such losses could have on IKB’s liquidity and credit rating, has helped to back and organise a €3.5 billion bailout and pledged to guarantee the lender’s loan obligations of more than €8 billion through the state-backed lender KfW � also IKB’s largest shareholder with a 38 per cent stake.

Shares in IKB closed almost 30 per cent lower as investors recoiled in shock at the extent of its exposure. IKB’s board called in Pricewaterhouse-Coopers last night to conduct a special audit and a management cull appeared imminent. It also postponed its annual meeting scheduled for August 30.

As nervousness about IKB spread across Germany Axel Weber, president of the Bundesbank, was forced to make a statement. “Fears of a banking crisis in Germany lack any foundation. The problems at IKB are of an institution-specific nature. They have been absorbed effectively by the support of KfW,” he said.

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FT.com / Home UK / UK - Buy-out deals may be on hold for months

 

Leading bankers on Thursday moved to calm the global markets even as they admitted that the shockwaves from of the US subprime collapse could put private equity deals on hold for the next few months.

Shares in European and US banks have slumped in the past week as investors have fretted about their exposure to subprime-related losses as well as leveraged loans stuck on their balance sheets. Analysts estimate large banks have underwritten loans worth $300bn to finance deals not yet been completed.

Bob Diamond, Barclays president, on Thursday predicted the consequences of the subprime collapse could take more than a year to be resolved. However, he said the leveraged loan market should recover more quickly: “We would expect at some point over the next two to three months to see that market at more normal volume levels.”

 

The City won't like that, share prices have been going up because of the debt driven buyouts.

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FT.com / World - Cost fears set to delay London Crossrail

 

Ambitious plans to build and open Crossrail by 2015 are likely to slip, amid concerns over affordability and growing pressure on businesses in London to make a big contribution to the costs of the multi-billion-pound cross-London rail link

Even assuming a financing package for Crossrail, the biggest and most costly transport infrastructure project being considered by the government, can be agreed in time for the October spending review, services are unlikely to begin for a decade.

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Concerns had been raised that starting work on Crossrail in parallel with the preparations for the 2012 Olympics could lead to big cost over-runs because of the extra demand on the building industry inflating construction costs. Cross London Rail Links, the project’s planners, appears to have assuaged those fears.

Instead, government officials said the emphasis in the forthcoming talks would be on ensuring the scheme, projected to cost at least £10bn, was kept affordable.

 

It will probably end up costing nearer £20bn and the taxpay will foot the bill.

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FT.com / Columnists / John Authers - The Short View: Fed’s priority

 

Markets are generating enough uncertainty of their own, but they now face external events that could stoke up volatility. Friday brings US non-farm payrolls, which almost always provoke a market overreaction. On Tuesday, the Federal Open Market Committee meets for the first time since world credit markets started to tumble. The FOMC’s statement also regularly provokes a wild overreaction.

Nobody expects the Fed to change the Funds rate next week. It will stay at 5.25 per cent. But the market does now believe the Fed will cut rates by the end of the year. Fed Funds futures put the chance of a cut to 5 per cent by January at almost 100 per cent.

 

 

I think this can be seen more as a panic measure by the central bank, they have no clue as to what's really going. To shore up the subprime market it should done now. The problem is other areas of the economy may start to overheat and the take over merry go round may start again!!! Although all of this highlights why a single interest rate doesn't work.

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BBC NEWS | Business | Number going bust set to increase

 

The number of people becoming insolvent in England and Wales has shown a surprising fall, official figures show. Between April and June 26,956 people became insolvent - a drop of 8.1% on the previous three months, but a rise of 4.2% on the same time last year.

Experts say the fall maybe due to lenders becoming less keen to accept Individual Voluntary Arrangements (IVAs), a type of insolvency.

In total, the number of IVAs fell 15% between the first and second quarters.

Into reverse

Overall, 16,258 people became bankrupt between April and June, down 2.9% on the previous three months.

 

So very difficult figures to interpret, on one had from last years numbers there's a increase, but over the past couple of months there's been a decrease.

 

Is this a lull before the storm?

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BBC NEWS | In Depth | UK House Prices | Overview

 

Overview

Average Cost: £210,578

Detached: £323,332

Semi-detached: £189,617

Terraced: £168,134

Flat: £196,505

Change in last quarter:

+0.2%

Change in last year: +9.25%

Sales: 266,966

 

Search on your postcode to see how your area is doing.

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BBC NEWS | Business | High Street boost for RBS profits

 

Royal Bank of Scotland (RBS) has reported better-than-expected profits for the six months to July. Group operating profit, before tax, was up 11% to £5.1bn ($10.4bn), with £1bn coming from its High Street outlets.

Chief executive Sir Fred Goodwin said "diversification" enabled the group to prosper across a range of markets.

A group led by RBS has offered 71bn euros ($97bn: £48bn) for Dutch bank ABN Amro, with competition from Barclays which has offered 67.5bn euros.

The RBS group - which includes Belgian bank Fortis and Spain's Banco Santander - plans to break up ABN should its offer prove to be successful.

RBS, the UK's second-biggest bank, said income grew 8% to £14.7bn, while costs as a percentage of revenue improved to 41.4% from 41.9%.

 

Another bank another large profit increase. What they mean by diversification is we've been lending to anyone and everyone to boost profit.

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Business comment: Clarke has a pint to prove after banks call time on deal - Telegraph

 

But even copious amounts of his favourite tipple couldn't have drowned Clarke's sorrows after he saw his £4.5bn property deal disappear.

Now he's attracting flak from some in the City having taken a £60m hit on the costs of the failed deal and seen M&B's share price fall by as much as 7pc yesterday.

That's quite a hit and shows how directly the equity markets are being affected by rising interest rates. It would be harsh to start calling time on Clarke's tenure at M&B given he's delivered on the strategy of growing the pub business while handing back tons of cash to shareholders and growing the share price from 225p in 2003 to recent highs of 880p.

Even after a turbulent two weeks it all adds up to a total return of 275pc versus 119pc for the FTSE All-Share. But what yesterday's collapse in M&B's proposed property joint venture with Robbie Tchenguiz reveals is just how jumpy credit markets have got. Banks were being asked to lend just over £4bn to finance the sale of 1,300 pubs from M&B's estate with the proceeds being handed back to shareholders.

 

And people wonder why there may be an incentive to fiddle the books to keep the share price up, not that that's been happening here but it does highlight the pressure company exec's are under to continue to deliver a high share price. Fail to deliver on the speculation and your share price goes down suddenly your a failure and the City want you out.

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Banks reporting season: the full results - Telegraph

 

HBOS Interim results 2007First half pre-tax profits: £3bn, +13pc | Total bad debt provision: £963m, +11.5pc

UK consumer bad debt charge: £678m, +15pc | Mortgages in arrears: 36,700, +1.6pc

 

 

Barclays

First half pre-tax profits: £4.1bn, +11.6pc | Total bad debt provision: £959m, -9pc

 

So far virtually all the banks have increased profit by over 10%. There lend lend lend policy appears to have worked although I would like to know how much the 21% increase in interest rates has helped to fuel profit.

 

The banks only need to keep fractions of a percentage for large money to be made, remember Superman 3?

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BBC NEWS | Business | Britons face 'lifetime of debts'

 

It could take 77 years on average for people asking Citizens Advice for help with debt to get back into the black, a report from the charity has said. This is because most of those asking the charity for help with debt were on just half the national average income.

People were condemned to a "lifetime of poverty" burdened by debt, the charity said, with many unable to afford the fees payable for declaring bankruptcy.

On average, people seeking help from Citizens Advice were £13,153 in debt.

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Bank spares homeowners as interest rates held at 5.75% | Special report | Guardian Unlimited Business

 

The Bank of England spared homeowners back-to-back interest rate rises today against a background of turmoil in financial markets caused by the growing crisis over US sub-prime mortgages and recent sharp falls in global stock markets.As it did so the Halifax released data showing that the housing market appeared to be reasonably robust in spite of the five interest rate rises over the past year.

The Bank's monetary policy committee had been expected to leave rates at 5.75% as it assesses whether the previous rate rises are succeeding in its attempt to cool the economy.

Still, a majority of City analysts expect the committee to raise rates at least once more in the coming months.

Andrew Smith, chief economist at KPMG, said: "We are by no means out of the interest rate woods and will have to wait for next week's inflation report to see whether further monetary tightening is on the agenda.

"It seems unlikely that the interest rate hawks' concerns - that the economy is operating close to capacity and that above-target inflation is in danger of becoming embedded - will have been dispelled by recent data."

He pointed to the rebound in oil prices which saw them set a record on Wednesday while possible weather-induced pressures on seasonal food prices would cast doubt on the view that inflation would quickly subside to the 2% target.

While oil prices retreated from their peaks today, with US light crude futures back below $77 a barrel and stock markets clawed back some of Wednesday's falls, most analysts say there is further volatility ahead as credit markets and the private equity industry adjust to a higher interest rate environment.

In Frankfurt, European Central Bank chief Jean-Claude Trichet signalled the bank would raise interest rates again next month. Speaking after the ECB's monthly meeting at which it held rates steady at 4%, Mr Trichet warned of "strong vigilance" on inflation.

He pointed to "rising oil prices, emerging capacity constraints and the potential for stronger wage and cost dynamics" as "upside risks" to price stability in the medium term.

 

So oil and food is likely to cause inflationary pressure, so raising interest rates is going to cure it?? Central bankers are talking complete and utter crap.

 

More active management is needed more that just waving the magically wand that is interest rate rises. Perhaps forcing the City to accept profit is good rather than the current trend of more profit than last year is good the same profit bad etc.... The dynamics of the economic system are wrong and it it these helping to cause inflation. However why not just ignore that and simply put up interest rates.

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Business Viewpoint | Business | Guardian Unlimited Business

 

We have bad news, and really bad news, Mitchells & Butlers confessed yesterday. Our whizzy property spin-off will have to wait; the debt markets are closed. Unfortunately the interest-rate swap we took out as financial protection is alive and kicking. As things stand, we're not protected at all. In fact, we're on the hook for £60m.M&B, amazingly, tried to put a brave face on it yesterday. The official line is that the £4.5bn joint venture with financier Robert Tchenguiz (who, we assume, feels the pain equally) will be revisited when the credit markets calm down, at which point the loss on the interest rate hedge would probably be a lot less.

Maybe events will turn out happily, but there's no telling with markets, as M&B now knows. In order to smooth the property deal, the group took out protection against rising interest rates. That looked sensible a few weeks ago when inflation, and a hawkish Bank of England, were the story.

Then hedge funds started going bust and the investment world rushed towards the safety of long-term gilts, thereby pushing down real long-term interest rates. M&B would have emerged unscathed if the property deal had happened, but it hasn't. The interest-rate swap, on the other hand, can't be cancelled so easily and, for the time being, we must think of M&B as a pubs company with a hedge fund on the side.

The danger of retaining the swap is obvious. What if long-term interest rates don't bounce back soon? What if the refinancing is delayed for a year? What if the uncrystallised loss of £60m becomes £100m? What if it becomes £150m, at which point it would be half last year's operating profits? How long is M&B prepared to tough it out?

Tricky questions for a company that, like most pub operators, thinks of cash management as ensuring the tills are secure. Now it's in the world of yield curves. Sure, M&B has been unlucky in timing, but it also looks naive in being the one left holding the baby. Isn't that what investment banks are for?

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Unsecured debts rise by 30% | Credit and debt | Guardian Unlimited Money

 

More than 8 million Britons have unsecured debts of £10,000 or more, with 2.1 million regularly struggling to meet their monthly repayments, it was claimed today.The number of adults with high levels of debt on credit cards, store cards, loans and overdrafts has increased by 30% since this time last year, according to debt consultancy Thomas Charles.

Around 18% of adults now owe more than £10,000 in unsecured debt - such as on credit cards, store cards and loans - while 5% have unsecured debts worth at least £30,000.

Among those who owe at least five figures, 25% admitted they frequently struggled to meet their monthly repayments.This figure has risen from 21% in August 2006, but is down from a peak of 30% in October last year.

According to the research, men tend to owe more than women, with 13% owing more than £15,000 compared with 11% of women.

But despite this, 27% of women are more likely to struggle with the repayments compared with 24% of men.

 

So record debt and the banks making increased profit.

 

Perhaps some genius might be able to spot a bit of correlation between the two, I know I can't.

 

People already struggling with repayments, surely another interest rate rise will help to alleviate the situation?

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US housing bubble was worst ever, Jim Rogers warns - Telegraph

 

The fallout from the worst US housing bubble in history has much further to run, investor Jim Rogers has warned.

Mr Rogers, a former partner of George Soros who retired at the age of 37, told Bloomberg: "This is only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment.''

The debris from the steepest slump in US housing for almost 20 years has contributed to the turmoil in credit and equity markets.

Just this week, Accredited Home Lenders, a subprime lender in the US, warned it may go bankrupt. The sub-prime mortgage crisis has wrecked global markets around the world and forced investment banks to pull $43bn worth of deals in the past fortnight.

Mr Rogers, who made much of his fortune in the commodities bull run of the 1970s, said: "So this bubble is the worst we've had in housing and it's going to be the worst before its over cleaning it out.''

Banks and US mortgage lenders have been at the centre of investors' nervousness, with banks estimated to be left holding almost $500bn in leveraged loans that have been agreed to but not syndicated.

 

It's only $500bn I'm sure that wouldn't sink the banks and I'm sure the Central Banks will have made sure that the banks lending out the money as fast as they can to make profit can cover the debt if it all goes tits up.

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Women's spending is pushing up clothes cost - Telegraph

 

Clothes prices are set to rise for the first time in five years - partly because women's wardrobes are "full to bursting".

Retail consultancy Verdict predicts that clothing prices will start rising again by 2010, with womenswear expected to bear the brunt of the inflation and average prices increasing by 4.7pc between 2008-2012.

According to Verdict, the average woman now buys twice as many clothes as she did back in 1995 - but the spending spree finally looks as if it is ending.

Saturation - combined with rising costs in the UK - means that the era of the £3 pair of jeans is over.

"UK consumers are saturated with clothing. The effect of this is that reducing clothing prices is unlikely to stimulate demand and result in retailers selling more volume, as has been the case in the past," said Neil Saunders, consulting director at Verdict.

 

But a interest rate rise will fix the problem!!!!

 

Looking at the figures even this increase won't really mean must as overall this would still mean a decrease in cost in real terms. Luckily for us the BoE is only interested in the past 12 months so any decrease doesn't count.

 

Massage those stats and then make a decision on them, that's the way to run an economy.