Each week QFINANCE will endeavor to bring you some of the biggest news stories from the past five days in finance and business, as well as some of the most fascinating websites and links that have crossed our path. We hope you'll enjoy reading, we hope you'll have a great weekend and we hope that you'll come back each Friday to brush up on your finance and business knowledge.
Monday September 12
It’s never easy getting out of bed on a Monday, particularly not if you work for a British bank and the morning papers are filled with praise for a new commission that would see a ring-fencing of retail from investment banking arms across the country. Unfortunately for those in UK banks, this was very much the case. The new, government-backed initiative, proposed by the Independent Commission on Banking and led by Sir John Vickers, should be implemented by the start of 2019 and has been hailed as “important and authoritative” (shadow Chancellor Ed Balls), as well as “fundamental and far-reaching” (Sir John Vickers himself). Chancellor George Osborne responded to claims that this would damage the competitiveness of UK banks by saying: “The government wants Britain and the City of London to be the pre-eminent global centre for banking and finance. We want universal banks headquartered here with all the advantages that brings”. He also noted that there are no plans to deviate from the report’s timetable. However, the debate rages on and you can read Ian Fraser’s assessment of the arguments on the QFINANCE blog.
Read about reactions to the Vickers report in more depth here.
Tuesday September 13
Reflecting a continuing lack of confidence in Italy’s finances, the nation’s borrowing costs reached a new high on Tuesday. Italy had raised €3.85bn (£3.3bn) in five-year bonds, but the interest rate then rose from 4.93% to 5.6%. Before the funds had been raised, there were reports claiming that the Italian finance ministry had met delegates from CIC, China’s largest sovereign wealth fund, which started rumors that CIC could invest some of its wealth in Italian assets and bonds. Credit Agricole strategist Peter Chatwell stated that “markets were positioned for a weak auction. The five-year yield of 5.6% is probably the most telling sign that issuance of new bonds into this environment is very difficult”. Italy has about 1.9 trillion euros of debt and has to raise 70bn more by the end of the year.
Read about Italy's interest rate in more depth here.
Wednesday September 14
In the next saga in the eurozone debt crisis story, the middle of the week saw credit ratings agency Moody’s downgrade two French banks, Credit Agricole and Société Générale. The justification for this decision was stated as Credit Agricole’s exposure to Greek debt and SocGen’s reliance on wholesale funding. However, the papers the next day were filled with notices that BNP Paribas managed to avoid a downgrade after revealing a large-scale restructuring that includes the bank offloading €70bn worth of assets. Baudouin Prot, the bank’s chief executive, outlined the plans that will see BNP Paribas shrinking its investment bank’s funding needs by €60bn by the end of next year in addition to exiting the UK, Hungary and Switzerland. Prot also claimed that the bank has the potential to meet its target of a nine per cent common equity ration under Basel III definitions by the end of next year.
Read about Moody's downgrading of French banks and the shake-up of BNP Paribas in more depth here.
Thursday September 15
Yesterday saw police in London arrest 31-year-old trader Kweku Adoboli in connection with allegations of unauthorized trading which has seen Swiss banking group UBS lose an estimated $2bn (£1.3bn). At the time of writing Adoboli was still in custody. The police confirmed that they had arrested Adoboli, who is believed to work in the European equities division, “on suspicion of fraud by abuse of position”. The Swiss bank were quick to state that no customer accounts had been affected, but the markets reacted badly to the news that UBS were investigating rogue trades and the bank’s shares fell 8%. In a letter to its 65,000 staff, the bank said: “The matter is still being investigated, but UBS’s current estimate of the loss on the trades is in the range of $2bn… It is possible that this could lead UBS to report a loss for the third quarter of 2011… While the news is distressing, it will not change the fundamental strength of our firm.”
Read about Kweku Adoboli and UBS in more depth here
Friday September 16
At the time of writing, European finance ministers and US Treasury Secretary Timothy Geithner were gathering in Poland for a debt crisis meeting, with Greece high up on the agenda. Whilst this is undoubtedly the most important piece of news today, it is unlikely anything will happen till much later, and this blog cannot wait for the conclusions made by this story. Instead, we bring you news that India has increased its interest rates for the twelfth time in less than 18 months in an attempt to curb inflation. In reaction to the fact that inflation reached a 13-month high of 9.78%, the Reserve Bank of India raised the policy lending rate, also called the repo rate, by 25 basis points to 8.25%. Analysts also warned that the decision by state-run oil firms to increase petrol prices by 5% due to the high cost of crude could worsen inflation. The government is now projecting growth of 8.5% for the fiscal year ending next March.
Read about India's inflation management in more depth here
Come back next Friday for another report on the world of business and finance.
More fun links that we’ve stumbled upon this week:If the summer is soon to be over, then the next step is to start thinking about Christmas. We came across this rather fun game, which attempts to bring the fun and sunshine back in these harsh economic times . You can buy 'Collapse: The Commemorative Game of the Financial Crisis' now (just don’t mention the word ‘Jenga’).
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