Volume 08 (2009, Week 09)

Turbulent weeks for Stock Markets
FTSE 100 loses almost 10% in the last two weeks.

Investors have not been as optimistic as I have been, and my prediction could not have been more wrong, all the stockmarkets continued to be battered, hitting many years-lows one after another. FTSE 100 reached a low of under 3500, which has not been seen since October 1995. Dow Jones Industrial Average hit a low point not seen since April 1997. Meantime, in Asia, Nikkei 225 went below a 26 year-low of October 1982, reaching 7088.47 during the trading day of March 3, 2009.


UK Bank Results out
RBS made an officially the biggest loss in UK Corporate-History.

RBS became a biggest loser in UK-Corporate History, making £24.1bn loss for year 2008. However the loss is smaller than the earlier expeced loss of £28bn. The large part of the loss comes from the goodwill write-downs related to its hostile take-over of ABN Amro. Lloyds Banking Group announced a loss of £10bn. Lloyds TSB would have made a profit of £800mn, if it was running as a separate bank, but the loss from HBOS amounted to £10.8bn, which made many people to question whether the merger between the two banks was the right thing to do. The UK government stands firm on its support for the merger, which now owns 65% stake in the new bank up from 43%. The government also has 68% controlling stake in RBS, and owns Northern Rock, which announced £1.4bn loss for year 2008.

The government is now the biggest player in UK Banking Sector. Three remaining independent biggest players announced a profit for 2008, Barclays announced a pre-tax profit of £6.1bn last month. HSBC announced a profit of $9.3bn (£6.5bn), which is 62% lower than that of 2007 and Standard Chartered made a profit of £3.4bn, up by 19% from the year earlier. HSBC is seeking to raise £12.5bn from shareholder through a rights-issue in the UK. The bank is offereing 5 new shares for every 12 shares held at a discounted price of 254 pence. As a result, HSBC became one of the biggest loser in the stockmarket last week, tumbling by more than 26% in the last week. Its North-American division made a loss of $15.5bn. Last year its North-American division made profit of only $91mn out of total profit of $24'212mn (or $24.2bn). Its Commercial Banking remains the biggest source of profit, generating $7.2bn profit, meanwhile the fortune of Personal Financial Services has reversed completely: turning from $5.9 profit in 2007 to $11bn loss in 2008 (or equivalent to negative 118% of the total profit for the Banking Group).

RBS and Lloyds would be feeling much worse, if AIG has not made its loss. American International Group (AIG), once the mighty insurer of the world, made a loss of $61.7bn in the last quarter of 2008 alone, bringing its total loss for the year 2008 to close to $100bn!


Bank of England lowers its base-rate
Bank of England goes into a completely new territory.

I am becoming sick of seeing the interest going down a month after a month. Now it has been lowered to a ridiculous level of 0.5%! That means, now you would be getting an interest on your savings equal to only a tenth of what it was before October 2008. In order to get the same amount of money, now you have to wait for 10 months for a single month's earning before October 2008 or you have to increase your savings by 10 times! Meanwhile borrowers can only dream of getting credits, which is not available. Many small businesses don't care if the interest rate had remained at 5.0%, all they care now is if they can credit at all.
(my earlier articles on interest rate cuts: Feb, Jan)

However, Bank of England is doing something which they have been reluctant to do so far: quantitative easing (a fancy term for increasing the money supply in the economy). The Bank said it would increase the money supply by $75bn in the economy. The Governor of the Bank of England, Meryn King said "I don't know how long it will take, much depends on the situation in the rest of the world. But if countries work together, these measures will I believe eventually work." The economists' rule of thumb is monetary policies take 12-18 months till its full effect is felt in the economy. The bank will not print more money to increase the money supply, but it will be buying government and corporate bonds.


Some other news
Manufacturers around the world continue to be hit.

General Motors (GM) announced $30.9bn loss for 2008. GM is trimming down by selling of its assets. One such an asset is Saab, its Swedish unit. Swedish government refused a bail-out for the company and as a result Saab filed for bankruptcy for protection. Other assets include its Hummer brand and its medium-duty truck business, which makes the Chevrolet Kodiak and GMC TopKick.

Exportig nation of Japan saw its export drop by staggering 45.7% in January from a year earlier. It is a result of two combinations: the falling demand for goods (with very few exceptions, such as food and medicine) worldide and strong yen, which makes Japanese producers at disadvantage, as they become less price-competitive in the world market.