Temasek pays US$600m for stake in China bank

SINGAPORE (AFP) – Singapore’s state-linked investment firm Temasek Holdings has paid 600 million US dollars to raise its stake in China Construction Bank (CCB), a report said Thursday.

The move will take Temasek’s investment in the Chinese bank to 6.5 percent, or 14.3 billion shares, from 6.0 percent, the Straits Times said, quoting unnamed sources.

Temasek declined to confirm the report, saying it “is inappropriate for us to comment on unsourced reports.”

Bank of America said last week it had sold a third of its stake in CCB for 7.3 billion dollars to a consortium that includes Temasek Holdings, China’s Hopu Investment Management and China Life Insurance.

The US bank said it sold the shares to raise capital.

Temasek’s increased holding in the Chinese bank came as it tries to rebalance its worldwide portfolio after taking a hit from the global economic downturn.

The firm, along with the Government of Singapore Investment Corp, are the city-state’s two main state investment vehicles.

They sunk billions of dollars into Western banks shaken by the US-born financial crisis and have since seen the value of the investments fall as share prices tumbled.

Temasek chief executive Ho Ching said last week the company will focus more on Asia and trim its presence in Western economies.

Temasek will reduce its exposure to members of the Organisation for Economic Co-operation and Development (OECD)–which groups industrialised countries–from 30 percent of its portfolio to 20 percent, she said.

Its Asian regional portfolio will stay at 40 percent, while Singapore investments will remain at 30 percent, said Ho, the wife of the city-state’s Prime Minister Lee Hsien Loong.

Temasek will add new areas such as Latin America, Russia and Africa where its collective exposure will be 10 percent. (AFP)

Citigroup posts losses, lower than expected, in Q1

New York – US banking giant Citigroup reported Friday it lost 966 million dollars in the first quarter of 2009, better than analysts’ projections.

The figure compares with the 5.1 billion dollars which Citigroup had lost in the first quarter of last year.

It was the sixth straight quarterly loss for Citigroup, which in 2008 posted record losses of nearly 28 billion dollars.

Now fighting for survival amid massive state support amounting so far to some 350 billion dollars, Citigroup is in the process of selling off some divisions in a reorganisation.

Citigroup became the latest major US bank this week to report improved results in the first faint signs of the start of a recovery in the hard-hit US financial sector.(dpa)

JP Morgan chase posts better-than-expected profits

New York – JP Morgan Chase reported a better-than-expected first quarter profit on Thursday, the third major US bank to do so.

Figures showed the New York-based bank recorded a profit of 2.1 billion dollars in the first three months of 2009.

Although profits were down 10 per cent from the first quarter of the previous year, they were still better than analysts’ expectations of 1.38 billion dollars.

JPMorgan Chase is one of the few major US banks to remain in the black throughout the financial crisis.

Investors saw the latest figures as an indication the US financial sector might be on the threshold of recovery after months of negative results.

JPMorgan Chase’s revenues soared 50 per cent to a record 26.9 billion dollars.

Chief executive Jamie Dimon said the bank’s levels of capital and reserves “enable us to withstand an even worse economic scenario than we face today.”

The good figures come on the heels of better-than-expected results for Wells Fargo and Goldman Sachs, which both posted profits of more than 1 billion dollars.

Citigroup, one of the biggest losers of the financial crisis so far, is expected to post a big loss when it releases its results on Friday.(dpa)

BoE holds interest rates at record-low 0.5

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The Bank of England said Thursday it had held interest rates at a record-low 0.5 percent and had so far pumped 26 billion pounds of new money into the economy under ongoing “quantitative easing.” Skip related content
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“The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent,” the central bank said in a statement.

“The Committee also voted to continue with the programme, announced on 5 March, of asset purchases totalling 75 billion pounds financed by the issuance of central bank reserves.”

The BoE launched a quantitative easing (QE) plan last month to create the new money to buy government bonds from commercial banks in a bid to unblock the credit crunch in the recession-hit economy.

“The Committee noted that since its previous meeting a total of just over 26 billion pounds of asset purchases had been made and that it would take a further two months to complete that programme,” the bank added.

The decision to hold borrowing costs, after a reduction last month, was in line with market expectations.

No other details were given about the MPC’s deliberations on their decision to hold interest rates. BoE watchers must wait until April 22, when the minutes from the two-day gathering are slated for publication.

Britain sank into an technical recession in the second half of 2008 due to the international financial crisis that has also left the eurozone, Japan and the United States with negative growth.

In response, the BoE has slashed its key lending rate in a series of sharp cuts since October as it seeks to breathe new life into the struggling economy.

Interest rate is held at record low

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The decision to hold rates and keep the pace of QE unchanged has reflected the difficulty of judging the impact of the measures just a month into the process – although Bank of England Governor Mervyn King told MPs two weeks ago that he was “mildly encouraged” by results. Skip related content
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The Bank’s latest credit conditions survey, however, showed lenders indicating they would make more credit available to individuals and businesses in the coming three months.

Other factors weighed up by the MPC in their two-day meeting would have included February’s surprise rise in inflation, although this was put down to the weakness of sterling sending up import prices and is likely to be a blip.

The Consumer Prices Index – which currently stands at 3.2% – is set to fall well below the Bank’s 2% target later this year as recession bears down on demand and prices. Although experts predict a fall in output during the first three months of 2009 of the same order as the 1.6% fall seen in the final quarter of 2008, surveys from manufacturing, services and construction firms have signalled that the break-neck pace of the UK’s slump into recession is at least slackening off.

The Bank of England has held interest rates unchanged at their record low of 0.5%. The decision comes after six months of cuts from the Monetary Policy Committee (MPC) to tackle a worsening recession.

Rate-setters are now pinning hopes on an unprecedented £75 billion programme of quantitative easing (QE) – effectively printing money – to ease credit conditions. The MPC launched the strategy last month and has bought up almost £26.5 billion in Government and corporate debt so far under a three-month programme.

The committee is monitoring the impact of QE on the wider economy every month but announced no changes to the scale of the operation. The decision to hold rates and keep the pace of QE unchanged reflects the difficulty of judging the impact of the measures just a month into the process – although Bank of England Governor Mervyn King told MPs two weeks ago that he was “mildly encouraged” by results so far.

The Bank’s latest credit conditions survey, however, showed lenders indicating they would make more credit available to individuals and businesses in the coming three months. Other factors weighed up by the MPC would have included a surprise rise in inflation during February, although this was put down to the weakness of sterling sending up import prices and is likely to be a blip.

The Consumer Prices Index – which currently stands at 3.2% – is set to fall well below the Bank’s 2% target later this year as recession bears down on demand and prices.

Although experts predict a fall in output during the first three months of 2009 of the same order as the 1.6% fall seen in the final quarter of 2008, surveys from manufacturing, services and construction firms have signalled that the break-neck pace of the UK’s slump into recession is at least slackening off.

Bank holds rates at 0.5 percent

The Bank of England left interest rates at a record low of 0.5 percent on Thursday and said it would take two more months to complete its 75 billion pound quantitative easing programme to fight recession. Skip related content
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This was the first month that the central bank’s Monetary Policy Committee had left interest rates on hold since last September, having since then cut them by a total of 4.5 percentage points to tackle Britain’s first recession since the early 1990s.

It signalled last month that borrowing costs would not go any lower but it would now resort to pumping money directly into the economy — so-called quantitative easing — to boost demand, something also being done in the United States and Japan.

The Bank said it had voted to continue with the initial 75 billion pound programme to buy government and corporate debt, and would review the decision each month.

“The Committee noted that since its previous meeting a total of just over 26 billion pounds of asset purchases had been made and that it would take a further two months to complete that programme,” it said in a statement.

There was little market reaction to the decision and the brief statement which lacked much of the drama of recent BoE announcements. However, some economists said the Bank could have provided more details on its quantitative easing programme.

“(It is) no surprise they did not move the rate; I think it is bit of a missed opportunity. They could have given us some verbal intervention,” said Alan Clarke, UK economist with BNP Paribas.

“I think it’s a bit disappointing that gilt yields have given up a lot of the fall that they had in the immediate aftermath of QE.

“So they could have injected some sort of wording, determination, to keep yields down or they could have even stepped up the pace of purchase.”

BUDGET LOOMS

With benchmark interest rates near zero, the U.S. Federal Reserve, Swiss National Bank and Bank of Japan have also recently flooded their markets with cash, creating money to buy domestic debt as they try to stimulate lending.

The British economy is expected to shrink in the region of 3 percent this year despite a series of unprecedented measures to try to stem the effects of the credit crisis.

On April 22 Chancellor Alistair Darling is expected to downgrade his economic forecasts in the budget and say recovery is likely to be delayed until the end of the year.

Bank Governor Mervyn King said last month that the government should be cautious about a further fiscal stimulus because of the budget deficit.

“With (Darling) now conceding that the economy is unlikely to recover until 2010, the main function of the MPC for the rest of the year will be how to implement quantitative easing effectively,” said Stephen Gifford, chief economist at Grant Thornton.

“Printing money to buy assets will drive down long term interest rates, improve liquidity and provide the much needed stability the UK craves for,” he added.

BoE holds interest rates, vows to pump more cash

The Bank of England on Thursday froze interest rates at a record-low 0.5 percent and vowed to continue pumping out billions of pounds under “quantitative easing” in a bid to crack the recession. Skip related content
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“The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent,” the central bank said in a statement.

The BoE, pausing after a series of six interest rate cuts since October, added that it has so far pumped 26 billion pounds of new money into the economy.

“The Committee also voted to continue with the programme, announced on 5 March, of asset purchases totalling 75 billion pounds financed by the issuance of central bank reserves,” it said.

The bank launched the quantitative easing (QE) plan last month to buy government bonds from commercial banks in an attempt to kick-start lending and unblock the credit crunch.

The BoE added Thursday that the programme would take another two months to complete. The government has already granted permission for it to turn out as much as 150 billion pounds in new money under QE.

Britain entered recession in the second half of 2008 due to the international financial crisis that has also driven growth in the eurozone, Japan and the United States into negative territory.

In response, the BoE has slashed its key lending rate in a series of sharp cuts as it seeks to breathe new life into the struggling economy.

But with borrowing costs close to zero, Thursday’s decision to put its key lending rate on ice could mark the end of a series of steep rate-cuts, according to economists.

“The BoE’s bringing to an end of the intense interest rate cutting programme that it started last October is no surprise at all,” said IHS Global Insight’s Howard Archer.

“The MPC has made it clear that they believe that bringing interest rates below 0.5 percent would have only a very limited positive impact at best and could even be harmful.”

He added: “This is primarily due to the negative impact that this would have on banks’ spreads and profitability, and hence potentially their lending.”

The decision to hold borrowing costs was in line with market expectations. Rates remain at the lowest level in the Bank of England’s 315-year history after a half-point cut last month.

Investec economist Philip Shaw added that the troubled economy had begun to turn the corner and that no additional stimulus was required from the BoE.

“To our minds the economy has started to show the very first signs of improving after months of sharp contraction,” Shaw said.

“This is likely to have dominated a decision that no further policy stimulus is required for now.”

No other details were given about the MPC’s deliberations on their decision to hold interest rates. BoE watchers must wait until April 22, when the minutes from the two-day gathering are slated for publication.

Barclays sells iShares to CVC for £3 billion

Barclays said Thursday it had sold its asset management business iShares to private equity group CVC Capital Partners for 4.4 billion dollars (3.0 billion pounds) to bolster its finances. Skip related content
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Barclays will lend 3.1 billion dollars of the sum to CVC itself, it said.

The bank said on March 16 that it had approached “a number of potentially interested parties” about selling iShares, and said last week that CVC Capital Partners was its preferred bidder.

Barclays has fared better in the financial crisis than many of its banking rivals, turning down the option of taking government funds to get through the storm and preferring to raise fresh capital elsewhere

Barclays sells iShares to CVC for £3 billion

Barclays said Thursday it had sold its asset management business iShares to private equity group CVC Capital Partners for 4.4 billion dollars (3.0 billion pounds) to bolster its finances. Skip related content
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“Barclays today announces agreement for the sale of its iShares business to Blue Sparkle, a new limited partnership established by CVC Capital Partners Group, for a total consideration of approximately 4.4 billion dollars,” the bank said in an official statement.

“The debt financing for the transaction will be provided by Barclays in the amount of approximately 3.1 billion dollars,” it added.

The bank had revealed last week that CVC Capital Partners was its preferred bidder after putting iShares up for sale in March.

Barclays has fared better in the financial crisis than many of its banking rivals, turning down the option of taking government funds to get through the financial storm and preferring to raise fresh capital elsewhere.

“This transaction realises significant value for Barclays,” added Barclays Chief Executive John Varley in the statement on Thursday.

“iShares has experienced rapid growth over the past several years and has reached a point where it can develop further on a standalone basis.

“Barclays shareholders will benefit from a reinforcement of our capital base and an ongoing commercial relationship with iShares.”

FTSE seen opening higher

The FTSE 100 index is seen opening 18-33 points higher on Thursday, according to financial bookmakers, rallying thanks to strength overnight on Wall Street and in Asia after a fourth straight session of losses on Wednesday. Skip related content
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The blue chip index closed 5.00 points, or 0.1 percent lower on Wednesday at 3,925.52. The benchmark index has fallen over 11 percent so far this year after shedding more than 31 percent in 2008.

Trading is expected to be thin as investors await news from the Bank of England Monetary Policy Committee meeting, and ahead of the long Easter holiday weekend, with a number of European markets closed.

Median forecasts of more than 60 economists see the Bank of England holding rates at their historic low of 0.5 percent until June next year as the economy continues to struggle in the throes of a deep recession.

Having cut rates to almost rock bottom, the central bank has turned to quantitative easing (QE) measures and investors will be looking out for any comments on the progress or possible expansion of this new policy.

Ahead of the Bank of England statement, investors will have March UK PPI data and February trade balance numbers numbers to digest.

Meanwhile Federal Reserve policymakers, faced with bleaker forecasts for a rapidly worsening recession, decided to buy a “substantial” amount of U.S. Treasury and mortgage debt to halt the slide, minutes of the most recent FOMC meeting showed on Wednesday.

“Traders are clearly finding some comfort in the Fed’s decision to buy long term treasuries as their QE attempts continue. Likely restrictions on short selling across the Atlantic are also going to offer some support,” said Jimmy Yates, head of equities at CMC Markets.

FTSE seen opening higher

The FTSE 100 index is seen opening 18-33 points higher on Thursday, according to financial bookmakers, rallying after notching up a fourth straight session of losses on Wednesday thanks to strength overnight on Wall Street and in Asia. Skip related content
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The blue chip index closed 5.00 points, or 0.1 percent lower on Wednesday at 3,925.52. The benchmark index has fallen over 11 percent so far this year after shedding more than 31 percent in 2008.

Trading is expected to be thin, however, as investors await news from the Bank of England Monetary Policy Committee meeting, and ahead of the long Easter holiday weekend, with a number of European markets closed on Thursday.

Median forecasts of more than 60 economists see the Bank of England holding rates at their historic low of 0.5 percent until June next year as the economy continues to struggle in the throes of a deep recession.

Having cut rates to almost rock bottom, the central bank has turned to quantitative easing measures — pumping 75 billion pounds into buying assets from the open market to add to the money supply and kick-start the economy — and investors will be looking out for any comments on the progress or possible expansion of this new policy.

Ahead of the Bank of England statement, investors will have March PPI data and February trade balance numbers numbers to digest.

Tories see bigger role for small banks

Failed banks that have been bailed out by the state might need to be broken up to prevent a repeat of the credit crisis, shadow Chancellor George Osborne said on Wednesday. Skip related content
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The state has a 70 percent stake in Royal Bank of Scotland and also owns a majority in the Lloyds Banking Group after bailing them out. Northern Rock has also been nationalised after it ran into problems.

“When the time comes to sell off those shareholdings, we need to think very carefully before simply selling them to the highest bidder without thinking through the consequences for the wider economy,” Osborne said in a speech in London.

“We should look at whether Britain in fact needs smaller banks,” he added.

The comments are significant because the Conservatives lead Labour in opinion polls and are on course to return to power for the first time since 1997. A general election must be held by the middle of next year.

Prime Minister Gordon Brown has said the banks will eventually be returned to private ownership and that the government hopes to make a profit for the taxpayer on the deal.

Osborne reiterated Conservative plans to restore the Bank of England to a central role in regulating the financial industry, reforming the tripartite structure set up by Labour in which the Bank, the Treasury and the Financial Services Authority all play a role.

He also said a new government and the Bank should review changes to the inflation target so that it reflected housing costs.

Pressed on his plans for the banking industry, Osborne stressed that any sale of state-owned shares was some way in the future.

However, he said there was a risk that recreating banks that were “too big to fail” would sow the seeds of a repeat of the current financial crisis.

“It would be a bitter irony if we came out of this crisis with a banking system that was even more concentrated and even riskier than the one we had before,” he said.

Bank set to leave rates unchanged

The Bank of England is set to pause for breath, leaving interest rates unchanged after six successive months of cuts. Skip related content
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Rate-setters slashed borrowing costs to a record low of 0.5% and embarked on unprecedented plans to boost the economy with £75 billion in newly-created money in March.

But the Monetary Policy Committee (MPC) is likely to wait several months before shifting rates again while the ‘medicine’ works on the UK’s recession-hit economy.

JP Morgan economist Malcolm Barr said: “Looking further forward, we continue to anticipate rates remaining at 0.5% for an extended period of time – in our forecasts that means until early 2011.”

With further cuts unlikely due to the potential impact on banks’ margins and their willingness to lend, the focus will shift to the pace of its programme of quantitative easing (QE) – effectively printing money.

The Bank – which has permission from Chancellor Alistair Darling to create up to £150 billion if necessary – will review the scale of the operation each month, but it will be difficult for rate-setters to judge the impact of QE just weeks into the process.

The Bank’s latest credit conditions survey, however, showed lenders indicating they would make more credit available to individuals and businesses in the coming three months.

Other factors which will be weighed up by the MPC include a surprise rise in inflation during February – although this was put down to the weakness of sterling – and the Consumer Prices Index, which is set to fall well below the Bank’s 2% target this year as recession bears down on demand.

Although experts predict a fall in output during the first three months of 2009 of the same order as the 1.6% fall seen in the final quarter of 2008, surveys from manufacturing, services and construction sectors have all signalled that the break-neck pace of the UK’s slump into recession is at least slackening off.

Mr Darling has admitted that he got the length of the slowdown wrong when he predicted a “short and shallow” recession in November. He now faces the prospect of downgrading growth forecasts again in the Budget later this month.

Bank set to hold rates steady

The Bank of England looks set to hold interest rates steady this week for the first time since September, as the central bank continues its 75 billion pound asset-buying programme to get the economy out of recession. Skip related content
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The central bank’s Monetary Policy Committee cut borrowing costs to a record low of 0.5 percent last month, marking the sixth straight month of rate reductions from a level of 5 percent before its October meeting.

At the same time it also said it would start quantitative easing — effectively printing money to buy assets such as gilts — in a bid to get the economy moving again, with Bank Governor Mervyn King strongly hinting there would be no more cuts.

“The official bank rate is about as low as it can go,” said Philip Shaw, chief economist at Investec. “Moreover, the Bank of England is still in the midst of implementing the committee’s decision last month to buy 75 billion pounds of assets.”

“No further monetary policy action looks to be on the cards for a while.”

So what are the nine members of the MPC likely to be discussing at their two-day meeting on Wednesday and Thursday?

Most likely, they will be looking at the efficacy of the QE programme so far and trying to get a feel for whether recent data does indeed point to some easing in the rate of decline of the economy, which fell into recession last year.

The Bank has so far bought more than 20 billion pounds of assets, and if it continues at this pace it could use up the 75 billion pounds by early June.

Policymakers are likely to be thinking about what assets they can buy besides gilts as the central bank has also been buying corporate bonds.

They will also be wondering whether the latest data does indeed point to the economy not deteriorating as fast as it was.

In particular, they may have been encouraged by the Bank’s credit conditions survey which showed some improvement in lending conditions even in the period before the central bank started QE.

“Our view is that the MPC will not need to expand the size of operations beyond 75 billion pounds in the absence of a fresh financial or economic shock,” said Shaw.