August 2009

21 August

The Organization for Economic Co-operation and Development (OECD) has said the economies of its members stabilized in the last quarter. The gross domestic product (GDP) in the 30 most industrialized nations was flat in the three months to June, after shrinking 2.1% in the previous quarter. Japan, France and Germany have recently emerged from recession, raising hopes the global economy is recovering.

Industrial and Commercial Bank of China (ICBC) provided evidence of the extraordinary recent expansion in Chinese bank lending when it revealed it had increased its loan book by 19% in the first half of the year. The world’s largest bank by market value said it had increased lending by Rmb864.5bn (US$126.5bn) in the first half, an amount roughly equal to the annual gross domestic product of Peru or New Zealand. ICBC reported a 3% rise in net profit in the first half to Rmb66.42bn. But this came against a backdrop of falling profitability as state-controlled banks rushed to extend loans at Beijing’s behest to infrastructure and industrial projects.

Six of South Korea’s leading banks signed a preliminary deal to set up a private bad bank, in an attempt to spark greater competition in a market for toxic assets that is monopolized by a state-run bad bank. The banks, led byShinhan and Kookmin , expect the bad bank to be set up by the end of next month, run until 2014 and clear up some Won5,000bn (US$4bn) of troubled loans. The other banks involved are Hana, Woori, the Industrial Bank of Korea and Nonghyup , according to a statement from the Korea Federation of Banks.

The US Justice Departmen t has given its approval for business software firm Oracle to take over computer hardware software maker Sun Microsystems. The US$7.4bn deal was agreed by the two in April this year, but still needs approval from the European Commission before it can be concluded.

Mexico's economy shrank by 10.3% between April and June as the global downturn hit demand for exports and swine flu drove tourist numbers down. The decline was blamed on slides in the industrial and services sectors, which are closely tied to the US and have felt the force of the economic crisis.

20 August

The US and Switzerland have signed an agreement designed to end a tax evasion dispute surrounding UBS's US customers. The Swiss banking giant will now give the US tax authorities the details of 4,450 accounts, US officials said. Hours after the deal was agreed, the Swiss government said it was putting its 9% stake in UBS up for sale.

The UK’s public sector net borrowing totaled £8bn last month, the first July deficit for 13 years, official figures have shown. The figure was much worse than the £500m deficit expected by analysts, and comes as the recession continues to reduce the government's tax returns.

19 August

The International Monetary Fund’s chief economist described a “nascent” global recovery, but warned that US policymakers walked a tightrope in timing the end of the fiscal stimulus. Olivier Blanchard wrote that a rebound in US consumer confidence and increased US exports to surplus countries in Asia were needed to replace higher public spending. But in a cautionary IMF paper, he said “it is clear” that the rebalancing may not take place, “at least not on the scale needed”.

A key measure of inflation in the UK has unexpectedly remained at 1.8%. Economists had expected the Consumer Prices Index (CPI) to decline to 1.5% in July. The Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments, also unexpectedly rose to -1.4%, from -1.6%. The RPI rate has fallen sharply over the past year as the Bank of England slashed interest rates to a record low amid a recession.

Qantas Airways has posted an 88% drop in its annual profits, as it continues to struggle with the economic downturn. The Australian airline said net income for year to 30 June fell to A$117m (US$96.5m).

The South African economy contracted for the third quarter in succession between April and June, the latest official figures have shown. It shrank at an annualized rate of 3% during the second quarter of 2009, a less severe decline than the 6.4% contraction from January to March. Manufacturing was the worst performing sector, seeing output slide 11%. The central bank cut interest rates last week to help the economy and the government has a stimulus plan.

18 August

The Federal Reserve and the US Treasury extended a US$200bn programme designed to revive the securitization market, bringing relief to investors concerned that the supply of cheap government financing was set to end. The term asset-backed securities loan facility (Talf), in which the Fed lends to investors wanting to buy securitized loans, is to be extended by three to six months from the original year-end expiry date.

17 August

Japan has climbed out of recession after the economy returned to growth in the second quarter, raising hopes that the worst of the financial crisis is over in the world’s second-largest economy. Data showed that gross domestic product (GDP) expanded 0.9% quarter on quarter on a seasonally adjusted basis, following four quarters of contraction. On an annualized basis, the economy grew 3.7%. Thanks to the government’s stimulus programme, which amounts to about 4% of GDP, public investment expanded 8.1% in the quarter. Exports were also robust, growing 6.3% in the period. Private consumption grew 0.8%.

Colonial BancGroup has become the biggest US bank to collapse this year. Colonial, a property lender based in Montgomery, Alabama, had about US$25bn of assets, said the US regulator, the Federal Deposit Insurance Corp (FDIC). The agency approved the sale of Colonial's US$20bn in deposits to BB&T;, a North Carolina-based bank. BB&T; will also buy US$22bn of Colonial's assets.

The Nigerian central bank has injected 400bn naira (US$2.6bn) into five banks and sacked their managers. The regulator said the banks were undercapitalized and posed a risk to the entire banking system. Governor Lamido Sanusi said Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank would be run as normal until new investors were found.

The economy of Hong Kong has emerged from recession, posting growth of 3.3% in the three months from April to June. It followed the emergence from recession of Singapore , which grew an annualized 20.7% in the second quarter. Hong Kong's growth was negative for four consecutive quarters, starting in the second quarter of 2008. The growth of 3.3% compares with a revised contraction of 4.3% for the first three months of 2009.

US industrial production rose 0.5% in July, stronger than expected and the first rise in nine months. The jump in production from America's mines, factories and utilities was helped by a 20.1% rise in production of motor vehicles and parts.

South Africa's central bank has taken markets by surprise by cutting its lending rate from 7.5% to a four-year low of 7%. It was the sixth cut since December, bringing the rate down from 12%.

14 August

US Federal Reserve policymakers have said that “economic activity is levelling out” and gave no indication that they would step up emergency measures adopted to stimulate the flow of credit. The Fed said that it “anticipates” completing its planned US$300bn treasury purchases by October - a month later than expected - but there was no echo of the Bank of England’s decision to expand its government debt-buying programme. The plans are a way to ease monetary policy even when interest rates are close to zero. Nor was there any change to the Fed’s pledge to hold interest rates at “exceptionally low levels...for an extended period” as the key federal funds rate was maintained at 0% to 0.25%.

The Bank of England delivered a more robust forecast for the UK economy over the rest of this year and into 2010, even as it warned that the recovery was likely to be “slow and protracted”. The bank’s quarterly inflation report underlined that interest rates are set to stay low for a longer period than expected by the market and that its £175bn programme of cash injections into the economy was unlikely to be unwound any time soon.

The volume of goods leaving factories in the euro zone declined in June after rising for the first time in many months in May. Euro zone industrial output fell 0.6% in June, the European statistics office said, pouring cold water on economists’ forecasts of another modest gain after an increase in production of 0.6% the prior month.

Lloyds Banking Group has agreed to sell its Insight asset management business to Bank of New York Mellon (BNY) for £235m. BNY is taking on £80bn in funds managed by Insight for clients outside the Lloyds group, as well as the Insight management team led by Abdallah Nauphal. The £235m price tag consists of £200m in cash and the remainder in equity.

Muslim Commercial Bank (MCB), Pakistan’s biggest lender by market value, has struck a deal to buy a 99.4% stake in Royal Bank of Scotland’s (RBS) Pakistan unit for a US$87m.

India’s government is planning a big shake-up of its archaic tax system in a bid to curb widespread evasion as it confronts a sharply widening fiscal deficit amid expanding social welfare programmes. The plan, announced by Pranab Mukherjee, the finance minister, aims to foster greater compliance with tax laws by lowering key corporate and personal income tax rates, simplifying rules and eliminating exemptions blamed for eroding the tax base. Corporate taxes on Indian companies will drop to 25% from 30%.

13 August

Both France and Germany record economic growth of 0.3% between April and June 2009, bringing to an end year-long recessions in these two large European economies. Government stimulus packages, stronger exports and a rise in consumer spending are attributed to the growth.

12 August

Dutch financial services group ING has returned to profit after three quarters of losses - though its banking division unexpectedly lost money. The firm made €71m in the three months to the end of June, down from €1.92bn a year earlier.

Commonwealth Bank of Australia(CBA), the country’s second largest lender by market capitalization, said that annual net profit fell 1% after bad debt charges rose and its wealth management unit generated less income, beating analysts’ expectations. For the full year ended June 30, Commonwealth posted net earnings of A$4.72bn (US$3.89bn), compared with A$4.79bn a year earlier and A$4.64bn forecast by analysts polled by Bloomberg. Bankwest, a local player acquired from the UK’s HBOS last year, contributed A$612m.

About 5,000 British investors with an estimated £2bn to £3bn in secret Liechtenstein bank accounts will be asked to come clean under a ground-breaking deal. HM Revenue & Customs (HMRC) wants to prise open the accounts by offering investors the chance to volunteer details of their deposits in return for limited penalties. Liechtenstein banks will be asked to close the accounts of customers who do not take up HMRC’s offer. Germany is looking to follow suit.

The number of people out of work in theUK has risen to its highest level since 1995, official figures have shown. Unemployment increased by 220,000 to 2.44 million in the three months to June, taking the jobless rate to 7.8%.

Japanese wholesale prices were down by a record 8.5% in July compared with a year earlier, highlighting the growing deflationary pressure in the economy.

11 August

China's economy has shown signs of improvement, with the annual growth rates of both industrial output and retail sales rising last month. July's industrial production rose 10.8% year-on-year, while retail sales grew at an annual pace of 15.2%.

Japanese consumer prices fell by a record 1.7% in the year to June, driven down by falling fuel costs, official figures have shown.

Latvia saw its Standard & Poor’s (S&P;) credit rating cut for the fourth time in a year as the country revealed that its economy shrank by a fifth in the second quarter. S&P; said it was cutting Latvia’s sovereign rating a notch deeper into junk status from BB+ to BB, citing the “political and economic challenges” facing the country as a result of “rapidly contracting” incomes and the associated pressure on public finances. Latvia’s gross domestic product fell an annual 19.6% in the second quarter - slightly worse than the 18% fall registered in the first quarter.

Northern Bank has reported a loss of £69m for the first six months of 2009. The bank made an operating profit of £35m, but had to set aside £104m to cover loans it thinks might not be repaid.

10 August

Mexico is in the grip of a deep recession. Gross domestic product (GDP) in the second quarter is expected to fall by 10.4% year-on-year, following a first-quarter drop of 8.2%, according to the finance ministry. The International Monetary Fund (IMF) predicts that, for the full year, the economy will fall by 7.3%, the worst performance in Latin America - worse than in the 1995 ‘tequila crisis’ or the debt crisis of 1982.

The UK's Financial Services Authority(FSA) is to publish a code this week setting out how banks will have to change their policies on pay and bonuses.

The International Monetary Fund (IMF) and Angola have agreed to begin talks on a loan to help the African country cope with the global economic slowdown. The IMF said it had been assessing the economy and talking to officials, and negotiations would start next month. Angola, one of Africa's largest oil producers, has been hit by the fall in the price of oil since last year.

India and South Korea have signed an agreement to reduce tariffs on goods and services to boost commerce between the two nations.

7 August

The European Central Bank (ECB) has left its main interest rate unchanged at 1%, just hours after another surge in Germany industrial orders lifted hopes of an early end to the severe recession in Europe’s largest economy. German industrial orders rose by a much higher-than-expected 4.5% in June, extending an already-strong 4.4% rise in the previous month, according to the Berlin economics ministry.

Royal Bank of Scotland Group , which is 70%-owned by UK taxpayers, has reported a pre-tax profit of £15m for the first six months of the year.

The prices of goods leaving UK factories fell at their sharpest annual pace in nearly eight years last month, official figures have shown. ‘Factory gate’ prices in July were down 1.3% from a year ago, although they were up 0.3% from June. Input prices - the cost of materials and fuels that manufacturers buy - fell at the steepest annual rate in almost 23 years, down 12.2%.

Italy's economy shrank by 0.5% in the second quarter of 2009, a smaller contraction than expected, official figures have shown. This is Italy's fifth consecutive quarterly fall in GDP, and compares with a record 2.7% contraction in the first quarter of the year.

NASDAQ OMX has revealed the effects of a bruising price war as it said its share of US equity trading dropped by a third and its second quarter profits suffered a similar drop. The transatlantic exchange reported a 31% fall in net profit to US$69m, or US$0.33 per diluted share, for the quarter, compared to US$100m, or US$0.47 per diluted share, in the same quarter last year.

6 August

The Bank of England has decided to pump another £50bn of new money into the economy in their programme of quantitative easing. It will take their total spending to £175bn, unexpectedly going over the £150bn set aside by the chancellor. The rate-setters also decided to keep interest rates unchanged at their historic low of 0.5% for a sixth month.

Goldman Sachs traders made more than US$100m in revenues on each of a record 46 days during the second quarter, while losing money on just two days, the bank said in a filing that underscored the strength of its trading operations.

A survey showed US companies cut a worse than expected 371,000 jobs last month, but the hemorrhaging of jobs across the economy continues to slow. The ADP National Employment Report, published with Macroeconomic Advisors, showed its smallest decline since October. Economists surveyed by Bloomberg expected, on average, a decrease of 350,000.

Germany's Commerzbank has reported further losses as it struggles to recover from the financial crisis. The bank made a net loss of €763m between April and June, a slight improvement on the €861m loss it made in the previous quarter.

5 August

UniCredit - Italy’s biggest bank and one of the largest lenders to recession-hit east European economies - announced better-than-expected second quarter profits. The figure was sharply down on the same period a year ago. However, it was more than 9% ahead of the first quarter of this year, reflecting a better operating trend at the diversified Milan-based bank, which has operations stretching from Italy to Poland, Germany and Kazakhstan.

Société Générale has reported a slump in profits of more than a half as it was forced to write off bad debts and investments in risky assets. The bank made €309m between April and June, down 52% on the €644m it made in the same period a year earlier.

Sportswear giant Adidas has reported a fall in profits for the April to June period of 93% as consumer spending fell during the economic downturn.

4 August

ANZ will buy Royal Bank of Scotland’s operations in six Asian countries for US$550m. ANZ, which wants to generate a fifth of its earnings from Asian operations, will buy RBS’s retail, wealth management and commercial businesses in Taiwan, Singapore, Indonesia and Hong Kong, as well as the UK bank’s institutional banking businesses in Taiwan, the Philippines and Vietnam.

Global manufacturing is clearly on the rebound, with Markit’s survey showing activity contracting at a significantly slower pace in the US and continental Europe, and UK industry back on a growth path. In the US, the July ISM manufacturing index rose 4.1 points to 48.94. This is the slowest pace of contraction since August 2008, before the collapse of Lehman Brothers, although still the 18th consecutive monthly decline. The new orders and production indices - indicative of prospects for future growth - both rose over the month. New orders jumped 6.1 points to 55.34, growing for only the second time since December 2007, while the production index rose 5.4 points to 57.95, growing for the second consecutive month.

UBS , Switzerland's biggest bank, has reported a loss of 1.4bn Swiss francs (US$1.32bn) for the April to June quarter. The loss is a slight improvement on the 2bn Swiss franc loss the bank made in the first quarter of this year.

World stocks have risen, boosted by encouraging manufacturing figures and solid earnings results. The Standard and Poor's 500 index tipped beyond 1,000 for the first time since November and the Nasdaq hit above 2,000 - the first time since October. The three major US indexes all added 1.25% or more by close of trade after a manufacturing survey rose in July. European indexes rose with London's FTSE closing at its highest since October and the pound rising. France's Cac 40 rose 1.5% and Germany's Dax added 1.78%.

3 August

Barclays has announced an 8% rise in first-half profits, boosted by its investment banking division. Pre-tax profits for the first six months came in at £2.98bn, although this was slightly below analysts' forecasts.

Banking group HSBC saw pre-tax profits halve to £2.98bn in the first six months of 2009. Rising bad debts in the US, Europe and Asia forced it to write-off US$13.9bn - 39% more than the same period in 2008.

Euro zone unemployment hit 9.4% in June - the highest in 10 years and another sign of the economic slowdown. The number of jobless grew by 158,000 during the month, taking the total number of unemployed in the area using the euro to 14.9 million.