in business

This weeks sees the banking problems spread to the German economy with Hypo Real Estate getting into difficulty, which is germany’s second largest mortgage lender!

We will have to wait to see how the newly agreed $700 Billion US bank resue plan will help world banks and their economies - world stock markets were lifted a bit on this news, but only time will tell as to whether this massive bail-out plan will work!

World governments are all playing their own part in trying to ease the crisis, as we see the Irish prime minister making a radical move to safeguard deposits in all Irish banks and the UK the Financial Services Authority has raised the guarantee on UK bank deposits from £35,000 to £50,000 per institution.

On the high streets we see that Marks & Spencer has seen its sales fall further as retails sales are hit by tough conditions on the high streets. So all in all yet another week of doom and gloom with Frances economy looking like going into to recession along with many other world economies.

End of the week saw:
Stock exchanges:
FTSE 100: 4,980
DOW: 10,325
S&P: 1,099
Nikkei: 10,938

Currencies
UK Sterling £ to US Dollar $ 1.76821
UK Sterling £ to Euro € 1.28061
UK Sterling £ to Aus $ 2.27453
US Dollar $ to Euro € 0.724245

The German government and banks have agreed a 50bn euro ($70bn; £40bn) plan to save one of the country’s biggest banks, the finance ministry says.

The news comes after Chancellor Angela Merkel said she would do all she could to save faltering Hypo Real Estate.

The government and the banks have found an extra 15bn euros after the collapse of a previous rescue plan.

Meanwhile, French giant BNP Paribas has confirmed reports it is to take over parts of the troubled Fortis bank.

Belgian Prime Minister Yves Leterme says the governments of Belgium and Luxembourg will in turn take a blocking minority share in BNP Paribas, according to the AP news agency.

“No client or depositor [at Fortis] will end up in problems due to the financial crisis,” said Mr Leterme.

The Iceland government is also working overnight to try to shore up its entire banking system.

“We tell all savings account holders that your deposits are safe. The federal government assures it” Angela Merkel

Earlier, Ms Merkel moved to reassure German savers that all their deposits would be safe.

“With this mutually agreed solution, the institution [Hypo Real Estate] will be stabilised and with it, Germany strengthened as a place to conduct finance in difficult times,” the finance ministry said.

After an emergency meeting with the central bank earlier, Ms Merkel said: “We will not allow the distress of one financial institution to distress the entire system. For that reason, we are working hard to secure Hypo Real Estate.

“We tell all savings account holders that your deposits are safe. The federal government assures it.”

But BBC business editor Robert Peston says it is unclear if this is a 100% government guarantee of all savings deposits.

He says that if it is, other EU states - including the UK - would have to follow suit.

Ms Merkel has previously been strongly critical of the Irish and Greek governments’ decisions to take independent action to protect all savings deposits.

‘Irresponsible’

The problems of Hypo Real Estate have put further strain on other financial institutions, which are struggling against a crisis of confidence in the global financial system.

Late on Sunday, French bank BNP Paribas confirmed that it had taken control of the holdings in Belgium and Luxembourg of the giant Fortis financial group, creating “the leading European bank in terms of deposits”.

Iceland’s government is also reported to be considering a $14bn (£8bn) injection into the banking system, having bailed out the country’s third largest bank, Glitnir, last week.

Ms Merkel said that managers at financial institutions should be held accountable for “irresponsible behaviour”.

Finance Minister Peer Steinbrueck said he was “appalled” that the problems at Hypo had not been revealed earlier.

He has accused the bank’s managers of misleading the government by failing to reveal the extent of the problem.

But he said Berlin would do all it could to prevent the bank’s collapse, to avoid “incalculably large” damage to Germany and financial services providers in Europe.

British chancellor Alistair Darling has said he is ready to take “pretty big steps that we wouldn’t take in ordinary times” to assist the British economy.

News reported by The BBC

The UK Treasury is trying to establish the details of what intially appeared to be a German plan to offer a 100% guarantee of its private bank deposits.

The UK is to increase its cap on the amount of savings it will protect from £35,000 to £50,000.

But a German decision to back all its savings would be likely to increase pressure on the UK to do the same.

BBC business editor Robert Peston said there was confusion over the specific details of Germany’s plan.

He said should German Chancellor Angela Merkel be offering to underwrite the retail liabilities of German banks, it would reverberate all over Europe.

Leaky borders

He added in such a situation, the UK would be expected to make a similar guarantee.

“If it turns out that [Germany] are guaranteeing all retail deposits, then I think it is inevitable that we will have to follow suit, because money leaks across borders like a sieve in these globalised markets.

“There is a risk money would flow from the UK to Germany if we didn’t offer the same kind of protection.”

Chancellor Merkel: Your deposits are safe

Ms Merkel’s comments about German savings came after it emerged that the country’s second biggest commercial property lender, Hypo Real Estate, was struggling to stay in business.

“We tell all savings account holders that your deposits are safe. The federal government assures it,” she said.

But it remains unclear at this stage exactly how far those guarantees will go.

In the UK, Chancellor of the Exchequer Alistair Darling has repeatedly pledged that he will do “whatever is necessary” to maintain stability in the British financial system.

Last week, the Financial Services Authority said it would be raising the limit on the amount of deposits that are guaranteed should a UK bank go bust from £35,000 to £50,000, per banking group, from this Tuesday.

Paris meeting

Greece and the Irish Republic have already announced they would guarantee all savings.

Earlier, Lib Dem Treasury spokesman Vince Cable told the BBC that the UK could resist following their lead but a German announcement would be more difficult to ignore.

“As long as it was the Irish and small countries, in a way this could be fended off, but Germany, of course, is a very big player and I fear that the British government may have to follow suit.”

He added: “People are anxious, there is a danger that if one country, a major country like Germany, offers blanket protection and others don’t, you then get an out-flow, so the British government will almost certainly have to follow. ”

Analysts believe Ms Merkel was forced into moving to reassure savers as Germany’s second-largest mortgage lender Hypo Real Estate was found to be teetering on the brink of bankruptcy.

Her move came a day after leaders of the major European economies met in Paris for talks on measures to halt the global credit crunch.

Britain, Germany, Italy and France agreed to work together to support financial institutions and bring in more regulation.

News reported by The BBC

Belgium and Luxembourg have said they will take steps to protect the remaining assets of Fortis after its Netherlands business was nationalised.

Belgian Prime Minister Yves Leterme said he aimed to have a solution in place before the European stock markets opened on Monday.

He said the government was in talks with potential suitors, but would not rule out further state intervention.

The news comes after a cross-border rescue plan failed.

Last week, the governments of Belgium, the Netherlands and Luxembourg agreed to to put 11.2bn euros ($15.5bn; £8.7bn) into Fortis to reassure savers and clients about the financial health of the cross-border bank.

Under that deal, each government would have taken a 49% stake in the bank in their respective countries.

But unable to restore confidence in its balance sheet, the Dutch government took full control of its operations in the Netherlands on Friday.

“Fortis is an important and healthy company that has good future prospects” Belgian Prime Minister Yves Leterme

European leaders disagree on pan-regional rescue plan

Crisis of confidence

Governments across Europe are scrambling to restore trust in the region’s financial system as the crisis that broke Wall Street financial giant Lehman Brothers sweeps across the Atlantic.

German property lender Hypo Real Estate, Franco-Belgian bank Dexia and UK bank Bradford & Bingley have all had to be propped up in one way or another by their respective governments.

Analysts say Fortis’ funding problems began after it joined forces with Britain’s Royal Bank of Scotland and Spain’s Santander to buy Dutch bank ABN Amro for 70bn euros last year.

The purchase was agreed just before the US sub-prime mortgage market collapsed, wiping billions of dollars off banks’ investments and paralysing the credit markets.

In interviews with Belgian television and radio stations, Belgian Prime Minister Yves Leterme said takeover talks were being discussed, but that he would not sell the bank in a rushed, cheap deal.

“Fortis is an important and healthy company that has good future prospects,” he said.

“There are other possibilities than just leaving it to a private partner.”

News reported by The BBC

UK house prices have fallen for an 11th consecutive month, dropping by 1.7% in September, according to the Nationwide.

The lender recorded a 12.4% annual drop in prices, pushing the cost of the average UK home down to £161,797, more than £20,000 less than a year ago.

Nationwide said the pace of house price falls had stabilised, but warned the next year or two would be “difficult”.

House prices were down year-on-year across the UK, with southern England suffering worse than the north.

The rate of fall, which was the same as in August, has remained relatively unchanged in the past three months.

But the annual fall was at its sharpest for 17 years.

‘All change’

“Casting back one year, there have been some astonishing and unpredictable developments in the housing and financial markets,” said Fionnuala Earley, Nationwide’s chief economist.

But she added that in the long-term there was no reason why house prices would not continue to grow in real terms even though there was a “sharp correction” now.

How long the correction lasts and how deep the fall in prices is depends largely on sentiment, as well as an end to the turmoil in the financial markets, she says.

Her analysis comes shortly after the Council of Mortgage Lenders suggested that predicting the short term course of house prices was “futile”.

Regional breakdown

The Nationwide has also released figures showing prices during the third quarter of the year in different areas of the UK.

A homeowner on being told to drop her original asking price

Ms Earley said that a distinctive feature of the July to September period was the accelerating fall in house prices in the south of England compared with the north.

Four of the six regions registering double-digit price declines were in the South, with East Anglia and the South West showing the biggest annual drops - both 11.4%.

Northern Ireland showed the steepest decline in house prices across the UK, which are now 29.8% lower than a year ago.

THE LOCATIONS LEAST AFFECTED BY THE DOWNTURN
Durham city: 2% annual rise. Average price £157,613
Edinburgh: 3% drop, £249,587
Oxford: 3% drop, £321,848
Canterbury: 4% fall, £215,608
Source: Nationwide

But the price rises had been so rapid in recent years, that prices are now only back to the same level as the third quarter of 2006.

In Scotland, where house prices had risen in the second three months of the year, recorded a 5% drop between July and September compared with the previous three months. That was a bigger drop than the UK average of 4.6%.

Wales witnessed the smallest fall in prices compared with other areas of the UK, with a three-month on three-month fall of 1.9% in July to September.

“The latest fall-out in the property market is not altogether surprising given the turmoil in financial markets over the past month,” said Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors (Rics).

“The recent increase in some mortgage rates and the continuing squeeze on the supply of loans suggests that further price falls are likely over the coming months.”

FALL IN HOUSE PRICES BY REGION
Region Average price Quarterly % change Annual % change
UK £165,188 -4.60% -10.30%
Wales £139,583 -1.90% -9.20%
Scotland £141,657 -5.00% -7.10%
Northern Ireland £159,970 -10.80% -29.80%
English regions
North £123,019 -3.50% -8.60%
Yorkshire & Humberside £140,634 -3.20% -10.10%
North West £144,513 -3.20% -9.10%
East Midlands £141,572 -3.70% -9.80%
West Midlands £150,046 -3.40% -9.10%
East Anglia £162,872 -5.10% -11.40%
Outer South East £191,898 -5.10% -10.90%
Outer Metropolitan £231,998 -5.80% -10.30%
London £274,124 -3.90% -9.40%
South West £181,074 -6.40% -11.40%
Source: Nationwide

News reported by The BBC

China has been monitoring and censoring messages sent through the internet service Skype, researchers say.

Citizen Lab, a Canadian research group, says it found a database containing thousands of politically sensitive words which had been blocked by China.

The publically available database also displayed personal data on subscribers.

Skype said it had always been open about the filtering of data by Chinese partners, but that it was concerned by breaches in the security of the site.

Citizen Lab researchers, based at the University of Toronto, said they discovered a huge surveillance system which had picked up and stored messages sent through the online telephone and text messaging service.

The database held more than 150,000 messages which included words such as “democracy” and “Tibet” and phrases relating to the banned spiritual movement, Falun Gong.

“These text messages, along with millions of records containing personal information, are stored on insecure publicly accessible web servers,” said Citizen Lab’s report, entitled “Breaching Trust”.

They said that by using one username, it was possible to identify all the people who had sent messages to or received them from the original user.

‘Meeting laws’

Skype is operated in China as Tom-Skype, a joint venture involving the American auction site, eBay and Chinese company TOM-Online.

Citizen Lab said it was “clear” that Tom was “engaging in extensive surveillance with seemingly little regard for the security and privacy of Skype users”.

They asked to what extent Tom Online and Skype were co-operating with the Chinese government in monitoring communications.

But Skype president Josh Silverman said China’s monitoring was “common knowledge” and that Tom Online, had “established procedures to meet local laws and regulations”.

“These regulations include the requirement to monitor and block instant messages containing certain words deemed offensive by the Chinese authorities,” he said.

Mr Silverman said that it had been Tom Online’s policy to block certain messages and then delete them and he would be investigating why the policy had changed to allow the company to upload and store those messages.

Although internet use is high in China, the authorities have long prevented citizens from accessing websites which are considered politically sensitive.

Western internet companies such as Google, Microsoft and Yahoo have been criticised by human-rights groups for adhering to China’s strict regulations.

News reported by The BBC

Swiss bank UBS has said it will cut 2,000 investment banking jobs and will reorganise the unit after being hard hit by sub-prime losses.

UBS said this will help it focus on its strengths and cut costs at a time when its revenue outlook is uncertain.

A day earlier the bank said it expected a profit for the third quarter despite recent market volatility.

The firm has been one of the European finance houses to be hardest hit by the problems in the US housing market.

Dramatic times

The Swiss banking giant has seen write-downs of more than $42.5bn (£23.9bn)following the sub-prime crisis.

The 2,000 job cuts in investment banking, will bring staff to around 17,000 by the end of the year, representing a cut of some 6,000 “since the peak in third quarter 2007″, a UBS statement said.

The move would enable the bank to cut costs to a “more sustainable level” as well as “position our core businesses for growth once fundamentals improve,” said Jerker Johansson, chief executive of the firm’s investment bank.

Its investment unit will also stop dealing in commodities except for precious metals.

The reorganisation has stemmed from “the ongoing crisis in the financial markets and dramatically changed industry dynamics”, it said.

Brighter future

At an extraordinary shareholder meeting on Thursday, UBS said it had cut down its investment in commercial and residential-linked assets and said the firm’s outlook was improving.

The bank predicts a small profit for the third quarter, after six successive quarters of losses. Its quarterly figures are due on 4 November.

“We want to be an accepted industry leader again,” said UBS chairman Peter Kurer on Thursday.

“We will work hard and with humility on these ambitious objectives.”

News reported by The BBC

Commodity prices have fallen amid expectations that a wider downturn in the global economy will dent demand.

Copper prices shed 1.8%, hitting their lowest level since February 2007, at $5,740 a tonne.

Other commodities to decline included platinum, which fell to its weakest in nearly three years. Crude oil hovered around $93 a barrel.

As the dollar has strengthened, some investors have opted to shift their money out of commodities.

Shares in mining firms were seen lower on Friday with Rio Tinto down 2.5%, while Lonmin shed 3.5% and Kazakhmys fell 4.1%.

Platinum has shed around half its value since spiking to a record high of $2,290 an ounce in March.

The metal, which is predominantly used in catalytic converters in cars, has been hit by slowing US car sales. It was trading at $955.00 an ounce.

The dollar rose against the euro on Thursday after comments from the European Central Bank (ECB) that it had considered lowering interest rates for the first time in five years.

Since the start of the week copper prices have fallen around 15%.

“Copper is clearly playing catch-up with the rest of the metals, and until stocks come down more and people start closing operations, there will be more downward pressure,” a dealer in Singapore said.

“Given where sentiment is, anyone overweight in commodities will be cutting to neutral or underweight,” he added.

News reported by The BBC

Britain’s services sector shrank in September at its fastest rate since records began 12 years ago, new figures suggest, adding to the economic gloom.

The Chartered Institute for Purchasing and Supply (CIPS) said its index of service sector activity fell to 46.

A figure of less than 50 indicates contraction. It was 49.2 in August.

New business crumbled, confidence slid and the pace of job cutting was stepped up. Data earlier this week showed a contraction in manufacturing.

On Thursday CIPS said the UK’s manufacturing sector shrank in September at the fastest rate for 17 years.

‘Deteriorating activity’

The service sector represents about 75% of the UK economy. Hotels and restaurants were among those hardest hit, the institute said.

Service sector employers have been cutting jobs for the past five months, it said.

CIPS director Roy Ayliffe said: “Operating conditions were marked by what are now real fears of recession as levels of employment continued to plummet as a result of dwindling demand.

“Lack of client confidence drove a significant reduction in new business as the global financial crisis gathered pace.”

Paul Smith, senior economist at Markit Economics, said: “Following on from the shocking manufacturing figures and a further considerable reduction in construction sector output for September, the services data provide more evidence of rapidly deteriorating activity in the real economy.”

He said the new figures suggested the UK economy was in, or close to, recession.

Next week the Bank of England will weigh up whether to change interest rates. The Monetary Policy Committee (MPC) will make its decision against a background of rising inflation and a slowing economy.

News reported by The BBC

France’s economy risks shrinking for the second quarter in a row, according to the finance minister Christine Lagarde.

There was a ‘real risk’ of negative growth this autumn, she said. The economy has already contracted by 0.3% in the second quarter of 2008.

If that were to happen, it would meet the usual definition of a recession - two quarters of negative growth.

However the minister deliberately avoided using the word ‘recession’.

In a statement Ms Lagarde said: “The risk of negative growth in autumn for the second consecutive quarter is now real.”

Recession arguments

Her comments came as France’s national statistics bureau, INSEE, said it expected the economy to shrink by 0.1% in the third and fourth quarters of the year.

“We have slowing growth - I will not use any word other than that.” Jean-Claude Trichet ECB president

President Nicolas Sarkozy acknowledged last week the French economy was in recession - but other politicians have shied away from the term.

The head of forecasting at INSEE, Eric Dubois, said it may be premature to use the word recession.

“The term that we are using is growth which is coming to a halt. Saying that there isn’t any growth already seems like a strong enough message to us,” he said.

Significant risks

INSEE’s projections have sparked a debate over the definition of recession.

The head of the European Central Bank, Jean-Claude Trichet, declined to label France and the eurozone’s economic slowdown a recession.

“ECB experts tell us we have slowing growth. I will not use any word other than that - slowing growth with significant risks growth may become even weaker.”

Government officials insist France is not in a true recession because overall growth for 2008 is still expected to be positive - just under 1%.

A European financial summit to discuss the crisis is due to take place in Paris on Saturday.

News reported by The BBC