Contributed by Beth Collinge of CTG – a division of ILX Group plc.
In the UK, the Financial Services Authority (FSA) will be abolished and replaced by a number of committees and agencies, The Bank of England will take on an expanded role as arbiter of both monetary and regulatory policy and a new Banking Commission has been established to review the future shape of the banking industry. The EU decided to publish results of “stress-tests” on 25 banks in July.
- Global equities rose for the second week running as tensions over the eurozone debt crisis showed signs of easing. The FTSE 100 dipped on Friday, breaking a run of seven consecutive daily gains, but over the week the index rose 1.7 per cent, cutting its loss for the year down to 3 per cent.
- Meanwhile benign US consumer prices boosted US government bonds: the yield on the 10-year Treasury notes was 3.21 per cent, down 0.01% on the week.
- In the currency market, the euro rallied again rising to a 3-week high of $1.2380 against the dollar, as concerns over Spain’s ability to service its debts waned, after the country raised €3.48bn in the bond market on Thursday.
- In commodities, gold hit a nominal record high above $1,260 a troy ounce on Friday, boosted by investors buying bullion-backed exchange-traded funds. GFMS, the precious metals consultancy, says investors last year bought more gold than buyers of jewelery for the first time in three decades.
Mergers and Acquisitions
- Standard Chartered is set to take a stake in Agricultural Bank of China and is forming a strategic alliance with the Chinese lender, which wants to raise more than $23bn (£15.5bn) in what could be the world’s biggest initial public offering. The agreement is StanChart’s first significant partnership with a big Chinese lender and brings the UK-based bank into line with global rivals such as HSBC that have already established tie-ups on the mainland.
- Barclays Capital, the investment banking unit of Barclays, intends to launch a pan-European “dark pool” trading platform in the third quarter, as it completes an 18-month drive to build an equities trading business from scratch. Dark pools are off-exchange venues where institutions such as asset managers place large orders in the hope of finding a match, and lessening the risk of moving prices against them. Prices are posted only after trades are done.
- US banks will foot a total bill of about $2bn (£1.35bn) in their second-quarter results to pay for the UK tax on bankers’ bonuses – a charge that could significantly reduce earnings at financial groups such as Citigroup, JPMorgan Chase and Bank of America. The tax – introduced last year by the previous government amid a public outcry at bankers’ pay – forced banks to pay a one-off 50 per cent levy on all UK bonuses above £25,000, including those awarded in shares. Goldman Sachs alone is in line for a $600m-plus charge.
- Anshu Jain has been put in sole charge of Deutsche Bank‘s most powerful divisions which last year generated two-thirds of the bank’s revenues, and more than 80 per cent of pre-tax profits.
- Moody’s, the US rating agency, provided a glimmer of hope at the end of last week by concluding in a survey of more than 30 European banks in 10 countries that banks’ exposures to both sovereign and public-sector debt and private-sector loans in Greece, Portugal, Spain and Ireland were manageable relative to their current capital levels.
- BP’s credit rating was cut sharply on Tuesday by Fitch, the rating agency, from double A to triple B, leaving it just two notches above “junk” status and potentially raising the company’s cost of borrowing. Fitch’s credit rating cut was much sharper than other agencies’. Moody’s Investors Service rates BP debt at Aa2, the third-highest investment grade, while Standard & Poor’s has it at double A minus, seven grades above the highest non-investment ranking. S&P downgraded BP by one level last week.
- The Bank of England now has an expanded role as arbiter of both monetary and regulatory policy. The Financial Services Authority (FSA) will be wound down over the next two years, though Hector Sants will stay on to lead the transition to the new regulatory regime and become head of the new prudential regulator – temporarily referred to as the Prudential Regulatory Authority (PRA). He will also become deputy governor of the Bank of England.
- Most of the FSA’s enforcement activities will come under the remit of the new Consumer Protection and Markets Authority (CPMA), which will regulate day-to-day market and business conduct and activities. The CPMA will also supervise markets to ensure fair dealing and prevent abuse. An Economic Crime Agency will be created to prosecute white-collar crime and “serious” financial wrongdoing, which are now handled by a variety of agencies including the FSA, the Serious Fraud Office, the Office of Fair Trading and the Serious Organised Crime Agency. The new regulators are expected to be funded in a similar way to the FSA – by a levy paid by the companies they regulate. The details will be announced in the Budget on 22 June.
- The Governor of the Bank of England, Mr. King, will be chairman of the new Prudential Regulatory Authority PRA, which will be a subsidiary of the Bank and will focus on the safety and soundness of banks, insurers and other financial firms; and he will have explicit powers to intervene and force firms to act if he believes there is a looming economic problem. Mr. King will remain as chair of the Monetary Policy Committee as well as the Financial Policy Committee (which will be in charge of systemic risk), thereby dovetailing monetary and financial policy.
- George Osborne, chancellor, will retain the right to overrule the governor of the Bank of England in a “crisis”: The coalition had argued that the current tripartite system, which shared responsibility among the Treasury, Bank of England and FSA, needed to be reformed because it was not clear who was in charge of preventing financial meltdowns. The FSA was established by Gordon Brown following the collapse of BCCI and Barings Bank in the mid 1990s.
- Sir John Vickers will chair the new Banking Commission which will conduct a wide-ranging review into the future shape of the banking industry, and is expected to decide whether Britain’s big banks should be forced to split up. Fears have been voiced that this could lead to banks, such as HSBC and Standard Chartered, relocating their head offices.
- The Office for Budget Responsibility (OBR), being run on an interim basis by Sir Alan Budd, former chief economic adviser to the Treasury, has issued its first report. It confirmed that the deficit is marginally smaller than was projected at the last Budget and decided to cut back the government’s previously rosy estimates for the UK’s long-term trend rate of economic growth. The decision to outsource forecasting to the OBR and make projection assumptions more transparent should bolster confidence in the UK government.
- The Accountancy and Actuarial Disciplinary Board, which regulates the profession in Britain, has launched a probe into Ernst & Young’s accounting treatment of controversial transactions known as “Repo 105s” and “Repo 108s”, which Lehman regularly used in its quarter-end balance sheets.
- This week, the Institute of Chartered Accountants of England and Wales proposed making public more of the debate between auditors and their banks, in order to provide greater transparency. The ICAEW suggestions come ahead of a joint report from the Financial Services Authority and the Financial Reporting Council next week that will detail failings during the crisis and offer recommendations for change.
- A PwC survey found most investors preferred to measure short-term instruments, such as derivatives, at fair value but to use amortised cost accounting for loans and deposits. This follows the publication last month by the Financial Accounting Standards Board of a proposal for using fair value to measure more categories of financial instruments.
- A spokesman for the People’s Bank of China announced that the central bank would allow the market to play a greater role in setting the exchange rate of the yuan against the dollar, in a concession to America ahead of the G20 summit in Toronto next week.
- Both Tesco and Sainsbury announced that sales growth had slowed as a result of lower food price inflation.
- The Swiss parliament finally approved legislation allowing the transfer of the names of thousands of American clients of UBS. In February 2009 UBS, the world’s second-biggest wealth manager, agreed to pay $780m to settle criminal charges. However, the US authorities pursued a linked, but separate, civil action requiring the bank to release the names of about 19,000 US clients with offshore Swiss accounts.
- Fannie Mae and Freddie Mac are set to be delisted from the New York Stock Exchange. The companies, placed under government control in 2008 and 80 per cent owned by US taxpayers, said yesterday they would be delisted for failing to meet minimum price guidelines which require stocks to trade above $1 a share