News & Current Affairs

September 26, 2008

Bank giant HSBC axes 1,100 jobs

Bank giant HSBC axes 1,100 jobs

HSBC hopes the cuts will allow it to weather the storm on financial markets

Banking giant HSBC is to axe 1,100 jobs worldwide, blaming the current financial turmoil for the decision.

About half of the cuts, which will affect back room jobs at its global banking and markets operation, will take place in the UK.

HSBC employs about 335,000 people around the world.

Last month, HSBC said half year profits fell 28% to $10.2bn (£5.2bn), as it was forced to write-off $14bn from bad debts in the US and asset write-downs.

Meanwhile, pre-tax profits fell 35% to $2.1bn during the same period.

An HSBC spokesman said the firm had opted to reduce its workforce, “because of market conditions and the economic environment, and our cautious outlook for 2009”.

Many of the job-losses will be at the headquarters of HSBC’s investment banking division, which are in London’s Canary Wharf.

Banks around the world have been coming under increased pressure from the credit crisis currently affecting financial markets.

The problems have forced governments to step in and boost money markets as well as bail out a number of companies.

Earlier this year, the UK government had to buy mortgage lender Northern Rock, while in the US lenders Fannie Mae and Freddie Mac have been rescued as well as insurer AIG and investment bank Lehman Brothers filed for bankruptcy.

Do you work for HSBC? Are you concerned by the proposed job-cuts? Send us your comments

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September 17, 2008

Investors edgy as US stocks fall

Investors edgy as US stocks fall

A trader reacts to news in the Philippines

Investors are concerned that financial markets will remain volatile.

US stock markets sank in early trade on fears the bailout of insurance giant AIG would not be enough to dispel the gloom engulfing the financial world.

AIG’s rescue and a potential takeover of UK lender HBOS had earlier boosted confidence in Asia and Europe.

But markets were volatile as nervous investors tried to make sense of the dramatic events that have unfolded in recent days.

The widely watched Dow Jones industrial average was down 1.9% at 10,849.

Top UK mortgage lender HBOS, which has faced heavy selling this week, fell as much as 50% before recovering after it emerged that it was in advanced talks to be taken over by Lloyds TSB.

HBOS shares were down 13% at 160 pence in London, the biggest faller in the FTSE 100, after being the top gainer at one point.

It has been a tumultuous week on financial markets, with significant changes in the financial landscape.

Key events on Wednesday included:

  • Beleaguered HBOS in merger talks with Lloyds TSB after a steep fall in its share price
  • US insurance giant AIG being bailed out by the US government
  • Volatile stock markets as global investors remain nervous
  • Trading on the Russian stock exchange being suspended
  • Barclays snapping up key assets from Lehman Brothers after its bankruptcy

I don’t think anyone has got any or much confidence in market direction for more than a few days
Darren Winder, Cazenove

The FTSE 100 index of top UK shares was down 0.48% at 5,001.4, reversing earlier gains, with some banking shares hard hit.

Shares in Barclays were up 9.8%, Lloyds TSB climbed 7.9% while Royal Bank of Scotland was down 2.6%.

Topsy-turvy trade

Trade is likely to remain rocky amid concern that financial system instability will continue after the dramatic events of the past few days.

“I don’t think anyone has got any or much confidence in market direction for more than a few days,” said Darren Winder, a strategist at Cazenove.

AIG’s bail-out follows the collapse of US investment bank Lehman Brothers, which caused share prices to plummet across the world’s financial markets.

Another investment bank, Merrill Lynch, has been sold off to Bank of America.

France’s Cac 40 share index was down 0.24%, while Germany’s Dax index was 0.64% lower, reversing earlier gains as Wall Street opened.

Russia’s stock exchange suspended trade following steep falls in shares.

Asian shares had a mixed session. Stocks in Tokyo, Taipei, and Seoul all rose, although prices in Hong Kong, Shanghai and Australia lost ground.

Japan’s Nikkei 225 index ended up 1.2% at 11,749.79, having risen by as much as 2.3% earlier in the day. The index had hit a three-year low on Tuesday.

Hong Kong’s Hang Seng index ended down 3.6% at 17,637.19 points.

September 15, 2008

Lehman set to go into insolvency

Lehman set to go into insolvency

Graph

Preparations are being made for Lehman Brothers, the fourth-largest investment bank in the US, to file for bankruptcy.

The two strongest potential buyers appear to have pulled out of talks to rescue Lehman – the latest victim of the American credit crisis.

If no new financing comes before Wall Street opens, it will have to seek “Chapter 11” bankruptcy protection.

This could result in a severe shock to the global financial system, as banks unwind their complex deals with Lehman.

Late on Sunday the US central bank, the Federal Reserve, announced new moves to ease access to emergency credit for struggling financial companies.

The Fed said the step – which broadens the types of securities financial institutions can use to obtain emergency loans – was designed to mitigate the potential risks and disruptions to markets.

In a related move, a consortium of 10 investment banks announced a $70bn (£39bn) loan program that troubled financial companies can use to help ease the credit shortage.

The banks – Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS – each agreed to provide $7bn (£4bn) to the pool.

On Monday, Asian stock markets fell amid concerns over the fate of Lehman Brothers.

Singapore stocks dropped 2.26% in morning trading and shares in Taiwan fell 1.83%.

Markets in Tokyo, Hong Kong, Shanghai and Seoul were closed for public holidays.

Lehman employs about 25,000 worldwide, including 5,000 in the UK.

Accountancy firm PWC has already been lined up to run the British operations of Lehman should the firm go into administration.

BBC business editor Robert Peston says UK bank Barclays’ decision to walk away from a Lehman deal was a huge setback for the effort to rescue the Lehman.

Barclays terminated the negotiations because it was unable to obtain guarantees in relation to financial commitments faced by Lehman when markets open on Monday.

Bad bank, good bank

The rescue effort for Lehman was being co-ordinated by the US Treasury and the New York Federal Reserve.

No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value
Peter Morici
University of Maryland

The US government had hoped to arrange a bailout under which other US investment banks would finance a “bad bank” that would hold the most “toxic” investments of Lehman in the property and mortgage market.

The “good bank” or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK’s Barclays.

Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks.

However, it appears that this plan is falling apart.

“The only thing that can prevent Lehman collapsing would be a huge injection of taxpayers’ money,” a banker close to the talks told the BBC, but added that US Treasury Secretary “Hank Paulson has made it clear he doesn’t want to do that”.

Hard choices

Bank of America, meanwhile, is said to be unconvinced that buying Lehman would be in the interest of its shareholders.

Instead, according to a report in the New York Times, Bank of America is in “advanced talks” to buy investment bank Merrill Lynch for more than $38bn.

HAVE YOUR SAY

It’s amazing that companies which charge high interest to cover risk still need to be bailed out by the taxpayer.

Jack, Canada

Like other US investment banks Merrill has suffered losses of tens of billions of dollars in the subprime crisis, and has seen its share price plummet during recent months.

“No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value,” said Peter Morici of the business school of the University of Maryland.

Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.

The firm’s share price has plummeted as fears over its future have mounted.

Former Federal Reserve boss Alan Greenspan said the US government faced “very difficult decisions” over Lehman if it could not secure a rescue deal that did not involve public funds.

Yet Mr Greenspan said it would be “unsustainable” for the government to bail out every US bank that got itself into difficulty.

Predicting that Lehman would not be the last to require rescuing, Mr Greenspan added that this would not necessarily pose a problem.

“The ordinary course of financial change has winners and losers,” he said.

September 10, 2008

Lehman reports third quarter loss

Lehman reports third quarter loss

Lehman Brothers office

Lehman has suffered heavy losses from the credit crunch

Troubled US bank Lehman Brothers has reported a third quarter net loss of $3.9bn as it unveils radical restructuring plans.

The losses were at the top end of analysts’ expectations.

The bank’s shares on Tuesday plunged 45% on fears about the state of its financial health.

Korea Development Bank (KDB) has said talks with Lehman Brothers have ended for now with regard to possible investment in the US bank.

KDB said in a statement: “We are announcing that we ended talks at this point in time because of a disagreement over conditions of a transaction and considering domestic and foreign financial market conditions.”

State-run KDB said the decision came because of disagreement over terms and current financial market conditions.

Lehman, the fourth-largest US investment bank, had hoped to secure a deal with the Korean fund before announcing its third-quarter earnings.

A Wall Street Journal report said Lehman might be considering selling UK property assets to BlackRock.

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