Emergency action for the UK economy and Spain’s problems get worse
FINANCIAL TIMES
Osborne’s £100bn plan for UK economy
By George Parker and Chris Giles
George Osborne on Thursday night announced plans for a £100bn support programme for the British economy, as he battened down the hatches for a worsening “eurozone debt storm”.
The chancellor told a City audience that he was working with Sir Mervyn King, the Bank of England governor, to “deploy new firepower” amid fears that turmoil in the eurozone could lead to a severe credit crunch and higher interest rates in Britain.
Mr Osborne’s aides spoke of a “maxing out of Plan A” – taking advantage of the country’s record of fiscal discipline and credibility with the markets to unleash an aggressive monetary policy offering cheaper loans to businesses and households.
Sir Mervyn also raised the prospect of a new round of quantitative easing, saying that “the case for a further monetary easing is growing”.
At the heart of the package is a BoE “funding for lending” scheme to cut bank funding costs in exchange for lending commitments. The Treasury claims the programme, designed to address the rising costs of loans and mortgages, could support an estimated £80bn in new loans.
THE GUARDIAN
Debt crisis: emergency action revealed to tackle 'worst crisis since second world war'
By Larry Elliott, Jill Treanor and Ian Traynor in Berlin
Sir Mervyn King has announced emergency measures to help banks and boost business lending after a warning from George Osborne that the "debt storm" raging on the continent had left the UK and the rest of Europe facing their most serious economic crisis outside wartime.
In a joint proposal between the Bank of England and the Treasury, banks will receive cut-price funds provided they pass on the benefits to their business customers.
This new "funding for lending" scheme could provide an £80bn boost to loans to the private sector within weeks and alleviate growing fears of a second slump since the start of the financial crisis in 2007.
In a second scheme the Bank will begin pumping a minimum of £5bn a month within the next few days into City institutions to improve their liquidity.
DAILY MAIL
Banking shake-up to cost £7BILLION... and the price of loans and mortgages will rise to pay for it
By Becky Barrow, Jason Groves and This Is Money Reporters
The cost of mortgages and banks charges could rise under new plans revealed by George Osborne today.
The Chancellor has unveiled plans for a banking revolution designed to prevent a future City crisis ‘spilling on to our high streets and putting taxpayers’ money at risk’.
But the Treasury admitted customers may have to pick up some of the £7billion-a-year bill for the reforms, which aim to stop any repeat of the 2008 banking meltdown.
A White Paper accepted the ‘vast bulk’ of the recommendations made by last year’s Independent Commission on Banking – although the most radical reforms will not come in until 2019.
THE TIMES
The Vickers verdict – bank reforms not tough enough
By Patrick Hosking, Financial Editor
Flagship proposals to make British banks safer ran into immediate trouble yesterday when their original architect suggested that they were not tough enough.
Sir John Vickers, chairman of the Independent Commission on Banking, criticised the Government’s White Paper for allowing banks to lend a greater multiple of their capital cushions than he would like. “The proposals are far-reaching, but on some points, such as limits on the leverage of big banks, we believe they should go further,” he said.
The proposed limit means that larger banks will be able to lend as much as 33.3 times their capital, far more than Sir John’s preference for a maximum multiple of 24.6 times, exposing them to a higher risk of failure if loans turn sour.
Leverage ratios are seen as a crucial backstop on top of more complex Basel-set capital ratio formulas, under which different risk weightings are applied to different assets. Regulators are concerned that these more sophisticated ratios can be manipulated by banks
THE SUN
Who's next in firing line?
Job cull fears as Unilever shuts 3 plants
By Steve Hawkes, Business Editor
Unilever sparked fears the eurozone crisis will trigger a brutal summer for UK workers yesterday by axing 800 staff.
The giant behind Magnum ice cream and Dove shampoo blamed the debt crisis as it unveiled plans to close three factories — and ship IT roles to India.The closures will hit sites in Swansea and Bridgend, South Wales, and Slough. And experts warned the chaos in Europe was now forcing firms to slash costs on a scale not seen since the recession of three years ago.
Unilever’s cuts came a day after Thomas Cook axed 500 workers.
Separately yesterday Nokia axed 10,000 staff worldwide after another quarter of huge losses.
Meanwhile Carphone Warehouse said it would have to cut costs because of the downturn in Europe.
bbc.co.uk
Spain's borrowing costs at fresh high after Moody's cut
Spain's borrowing costs have risen to another euro-era record, with lenders demanding a higher interest rate.
The yield on benchmark 10-year bonds hit 7% in early trade, a level which many analysts believe is unsustainable in the long term. It later fell back slightly.
It came as Moody's cut Spain's credit rating to one notch above "junk".
Italy also saw borrowing costs rise, selling bonds repayable in three years with a yield of 5.3%, up from 3.9%.
At the weekend, Spain agreed a 100bn-euro ($126bn; £81bn) bailout of its banks by fellow eurozone countries.
It was hoped that the bailout would help calm fears in the financial markets about the strength of Spain's banks and ease Madrid's borrowing costs.
However, Moody's said the eurozone plan to help Spain's banks would increase the country's debt burden.
DAILY TELEGRAPH
Debt crisis: ECB last hope as dam breaks in Spain
By Ambrose Evans-Pritchard, International business editor
"We're facing maximum tension. The situation is unsustainable over time," said the country's finance minister Luis de Guindos. Yields on 10-year Spanish bonds yields punched to almost 7pc, above levels that triggered ECB intervention to back stop Spain last November.
"The ECB needs to intervene very quickly or it is game over," said Nicholas Spiro from Spiro Asset Management. "There is a whiff of capitulation in the air."
The dramatic escalation comes just days after the eurozone agreed a €100bn rescue package for the Spanish state to recapitalise its crippled banks. "It is very worrying. Markets are behaving as if the eurozone is heading for break-up," said Jens Sondergaard from the Japanese bank Nomura.
cityam.com
Central banks on standby if Greek vote hits markets
By Harry Banks
Central banks have devised a plan to boost liquidity and prevent a credit crunch if Greeks fail to elect a pro-bailout government on Sunday.
A senior US official cautioned that the Greek election will not provide “the definitive signal on what happens next”, stating that central bankers are on standby to ensure enough cash is flowing through the financial system.
“The central banks are preparing for coordinated action to provide liquidity,” a G20 aide told Reuters.
The news came after markets were propped up by rumours that Greeks are set to vote for a pro-bailout government – in which event no such liquidity move would be required.
Greek stocks shot up by over 10 per cent yesterday, followed a spike of around 20 per cent in Greek bank stocks, provoked by the rumoured poll data.
And markets throughout the world were also bolstered by the bullish news, which would boost the chance of Greece staying in the Eurozone.
DAILY EXPRESS
How Westlife Star Shane Filan Went Bankrupt With Debts Of £18m
By Elisa Roche
Westlife singer Shane Filan has spoken of his devastation after being declared bankrupt just days before the hugely successful Irish group play their farewell show.
The 32-year-old, who has sold more than 44 million records as part of the boy band, was declared bankrupt earlier this week at Kingston County Court in Surrey.
The star is said to be in debt amounting to £18million after his property development company, based in the Republic of Ireland, went into receivership last month.
In a statement, the singer said it had been a difficult decision to take but he had “exhausted all other options”.
He went on: “Together with a team of financial and legal experts I have spent months exploring all possible alternatives to bankruptcy – but to no avail.
FINANCIAL TIMES
Mulberry falls 22% after slower sales
By Andrea Felsted and Adam Jones
Mulberry, the English luxury-goods maker, lost more than a fifth of its value on Thursday after its annual results came in short of analysts’ stellar expectations, while recent sales showed a slowdown in growth.
Quoted on the Aim junior market, the shares fell 22 per cent to £15.65 on Thursday, after sales from stores open at least a year rose 3 per cent in the 10 weeks to June 1, compared with the year-earlier period.
This is a marked slowdown on like-for-like sales growth of 26 per cent in the year to March 31.
Godfrey Davis, chairman, attributed the slowdown to a 24 per cent fall in like-for-like sales from its outlet stores – used purely to clear stock – which rose by 56 per cent in the year earlier period.
THE SCOTSMAN
Exports remain the driving force for UK’s soaring car production
By Gareth Mackie
Car production in the UK reached an eight-year high last month as strong export demand contributed to a 42 per cent jump in output.
The Society of Motor Manufacturers & Traders (SMMT) yesterday said 141,146 cars were built in May, the highest figure for the month since 2004, with exports accounting for the vast majority of the total.
Some 120,120 of the motors constructed last month were destined for overseas markets, an increase of 45.5 per cent on the same month last year.
In the year to date, car production has increased by 17.3 per cent to 636,923 vehicles.
The UK’s car manufacturers have set themselves a target of breaking production levels within three years as a result of multi-billion pound investments in the industry, which employs more than 700,000 people and accounts for around 11 per cent of the country’s total exports.
THE INDEPENDENT
Major investors turn the screw on companies over 'fracking'
By Tom Bowden
A coalition of the world's biggest institutional investors stepped up the pressure on oil and gas companies to become greener yesterday, as they kicked off a campaign to clamp down on their "fracking" activities.
An alliance of 200 institutions – which control more than $20trn (£13trn) of assets worldwide and include Scottish Widows, the BBC Pension Trust, the US pension giant Calpers and APG of Holland – have pledged to take action to reduce the amount of methane which oil and gas companies emit when fracking for hydrocarbons.
