Bailing out the UK banking system to add 13.4% to government debt| Banking Direct

Articles

Bailing out the UK banking system to add 13.4% to government debt

The International Monetary Fund (IMF) is on the verge of issuing some updated figures on losses made by banks during the current financial meltdown. Their updated forecast that banks losses could reach as high as £2.75 trillion resulting in damage to the global financial network that could take years to repair.

Was it only one year ago that the IMF announced their estimations of total losses from the credit crunch would reach a staggering one trillion dollars? It is now fairly obvious that this figure was totally realistic, and globally banks will need almost three trillion dollars, with the UK economy accounting for a mere $400 million dollars of that, leaving Britain holding the highest per capita deficit in the World.

On the high street, it was reported that in March UK retail prices for the first time in nearly 50 years have fallen below the zero mark, according to a report issued by the Office of National Statistics. In a sign that increasing deflationary pressures were beginning to hit the economy, the retail price index fell to minus 0.4 per cent during the month.

Yesterday on the Stock Exchange, share prices inched slightly lower, largely due to losses made by banks and insurance companies.

Insurance giant, Prudential were on the block, with their shares dropping 4.5% (45 pence to 363) in value

Other insurance firms shared a similar or often less drastic fate, with Aviva shares down 7.5 %,( 18 pence to 253) and Old Mutual shares declined by 5.5%. (3 pence to 56)

Banks also had a bad day with Lloyds Banking Group dropping the furthest, down by 9.1 percent to (9 pence to 95), and while Royal Bank of Scotland fell by 5.9 percent (1.8 pence to 30.6). Barclays shed 4.8 percent of their share value (10 pence to 199).

Premium drinks producer Diageo, the name behind the Guinness and Johnnie Walker brands, celebrated with a 1.2 per cent price hike (10 pence to 793) after analysts raised their price target.

To indicate that all is not lost for the British Empire, luxury goods manufacturer Burberry Group announced a 21% increase in second-half sales to 663 million pounds. Reasons for this dramatic upturn were put down to increased demand for outerwear and luggage, largely fuel by weak sterling abroad.

The FTSE 100 closed down 3.4 points, at 3,987.46, while the FTSE 250 index also dropped by 28 points to close on 6,987.25

Sterling fell slightly against the dollar and the Euro and rose slightly against the Japanese Yen and the Swiss Franc:

Pound/US dollar 1.4634
Pound/Euro 1.1315
Pound/Japanese Yen 144.03
Pound/Swiss Franc 1.7111

U.S. stocks turned higher after starting weakly on Monday. The Dow Jones Average rose by 127.83 to close at 7969.56. Nasdaq crept up a little, 35.64 points to 1643.85

Constantly basking in the shadow of Google, search engine operators, Yahoo announced that their profits had fallen sharply in the first three months of 2009, with the obvious reason that the recession prompted advertisers to cut back on spending.

Yahoo did report a profit of £80.4million in the first quarter of 2009; however it was down by 78% from the same period a year ago.

Revenue had also contracted by 13% to around one billion pounds for the period, causing the company to announce their intention to their workforce by 5% (between 600 and 700 jobs) as part of cost cutting exercise.

Oil prices were reported to have weakened on Tuesday, while base metal share values stuttered as the recent uncertainty about the actual state of health of the global banking system gained ground.

In Asia, Japan reported its first annual trade deficit in 28 years, with exports having dropped by more than £4.8billion for the first quarter of 2009. .

Total exports were down by 16% in the year to March and around half of what they had been for the same period in 2008. Reasons stated was that demand for Japanese cars and electronics in the United States and Europe has plummeted by 45.6% due to current global economic woes.

The news came in conjunction with the Japanese Government's announcement that they are to issue an extra 10,800billion Yen ($110bn) of government bonds in 2009 in an effort to tackle the county worst recession since after World War Two.

The bonds are expected to fund the bulk of the government’s $154bn stimulus plan, bringing its expected total new issuance for the fiscal year nth to a record 44,100 billion Yen , up 33 percent on last year