A number of deals designed to cure the global financial crisis were in danger of unraveling on Wednesday, with losses mounting at banks and economies showing further signs of serious deterioration.
Economies including the euro zone, Britain, China and South Africa reported data supporting the arrival of a global recession. The International Monetary Fund withheld official backing for a $6 billion bailout plan for Iceland, the Financial Times reported, putting loans to the North Atlantic island nation at threat. Some of British banking giant Barclays’ biggest shareholders have threatened to vote against a planned £7 billion ($10.83 billion) capital raising unless it improves the terms of the deal, British newspapers said.
The latter follows a row over the crisis-driven planned purchase of British lender HBOS by Lloyds TSB with leading banking figures arguing a more competitive deal should be sought. Aides to US President-elect Barack Obama, meanwhile, were playing down reports of tension with the Bush administration over help for the stricken car industry. A feud within Japan’s cabinet over whether rich people should get payouts as part of a stimulus package looked set to be put aside after delaying the plan for weeks.
Questions are also beginning to be asked about just how much help governments can give. “The US’ financial resources are already stretched and a flood of new demands may overwhelm a government already staring down at a record budget deficit next year,” UBS economists said in a note. Financial markets were rocked again under the combined pressure of a global economic downturn and the worst financial crisis in 80 years.
There were more corporate profit warnings with General Motors shares falling on Tuesday to levels not seen since World War Two. “Whether it’s economic indicators or company news, it’s just too awful,” said Takashi Ushio, head of the investment strategy division at Marusan Securities in Tokyo.
DECLINE AND FALL
The financial crisis took a further toll with France’s Natixis SA announcing falling investment banking revenue and Italy’s UniCredit posting a sharp drop in quarterly net profit. In Germany troubled property lender Hypo Real Estate Holding AG posted a pretax loss of €3.1 billion ($4 billion) in the Q3, more than analysts had expected. Losses and property writedowns ate into its income.
Dutch group ING posted its first-ever quarterly loss due to impairments on stocks and bonds, counterparty losses and property writedowns. Insurer Swiss Life said Q3 premium volumes fell 11% to CHF 3.075 billion ($2.61 billion) and warned it would not meet its full-year net profit guidance. This came against a background of continuing decline in world economies.
Euro zone industrial production fell more than expected in September, underlining beliefs the economy contracted in the third quarter and entered a technical recession. Production in the 15-country area fell 1.6% month-on-month and 2.4% year-on-year. British unemployment rose to its highest level in more than a decade in the three months to September.
The Bank of England, meanwhile, said the British economy would shrink sharply next year and inflation could be less than 1%. China’s retail sales data pointed to slowing consumption and South Africa reported that retail sales had fallen for the fifth month running.
The World Bank said more countries were seeking its help. The head of the Organization for Economic Cooperation and Development, Angel Gurria, said there was room for further interest rate cuts in the stagnating euro zone. World Bank President Robert Zoellick said global trade may drop next year for the first time in more than a quarter of a century as the worldwide credit crisis cuts into trade financing. “It is our estimate that trade could actually fall, not grow more slowly or have growth fall, but actually fall next year, for the first time since 1982,” Zoellick said in an interview with Reuters ahead of a meeting of world leaders.
Zoellick said the bank expected its lending to increase to $35 billion this year from $13.5 billion last year, adding that countries such as Mexico, Indonesia and Colombia were tapping its contingency financing fund amid worries about access to credit. Investors, meanwhile, were looking to a summit of world leaders in Washington on Saturday for solutions, although President-elect Obama is steering clear of the meeting. (Reuters)