More than one million homeowners will see their mortgage payments jump by hundreds of pounds a year from today as lenders, including two state-backed banks, raise borrowing costs. Borrowers with other banks and building societies face similar increases in the months ahead, experts have warned, with the Eurozone crisis and lenders’ funding problems driving up the cost of home loans. The squeeze on family finances has raised fears of a new wave of home repossessions. From today, seven lenders including Halifax, Co-operative, Yorkshire and Natwest are increasing rates for existing customers by up to 0.5 percentage points, adding about £55 a month to a typical £200,000 mortgage, The Times reports.
Profits at Lloyds are forecast to fall 16% next year, while RBS’s earnings will drop 8%, as the banks face higher funding costs, as a result of their downgrades by Moody’s, according to Citigroup. Both banks have put in place major turnaround programs aimed at returning them to profitability. But Citigroup warned these plans could be disrupted by the downgrades, which could also upset plans to privatise the lenders. Lloyds, which is 41% owned by the state, is currently rated A1 by Moody’s but is expected to be downgraded by two notches to A3. Citigroup said the lender would as a result have to put up a further £24bn of assets against its secured borrowings, to compensate for the increase in its perceived riskiness, The Telegraph says.
Exporters are at risk of having their wings clipped as a stronger international appetite for sterling assets drives the pound to its highest levels in two and a half years. The pound rose yesterday to its highest value against a basket of currencies since August 2009 after the Swiss National Bank nearly doubled its nominal holdings of sterling assets in the first quarter of the year. Although the Swiss data were distorted by short-term swap arrangements, traders seized upon them as evidence that leading institutions were funnelling more cash into the pound and trimming euro holdings. A higher pound will make British exports more expensive and could dent government hopes for a “rebalancing” of the economy towards trade. If the gains are sustained, it could prompt the Bank of England to extend its £325bn quantitative easing scheme in the hope of capping sterling gains, analysts said, according to The Times.
China has announced plans to cut import tariffs just days before US Treasury Secretary Timothy Geithner arrives in Beijng for the latest round of talks between the two superpowers. Duties will be reduced on an array of imports, including energy products and some consumer goods, China’s State Council said on Monday, without giving more details. The White House is pushing Beijing to cut tariffs and reverse a currency policy that many in the US believe hands Chinese manufacturers an unfair advantage. The State Council also ordered the country’s local governments to “appropriately enlarge” the import of consumer goods. Government departments and local administrations in China must “adjust their focus on encouraging exports and limiting imports and place equal emphasis on both”, the State Council said, according to The Telegraph.
The chairman of RSM Tenon stepped down yesterday, paving the way for a second boardroom reshuffle this year. Adrian Martin took control of the troubled accountancy firm in January after Tenon’s two top directors left abruptly amid mounting losses and questions about the company’s accounting. The former BDO managing partner was instrumental in securing Tenon’s short-term survival, bringing in Chris Merry to replace Andy Raynor as chief executive and helping to negotiate a crucial funding agreement with Lloyds Banking Group, which Tenon owes about £88m. But Mr Martin has also recently been inmvolved in an embarrassing dispute between Tenon and PwC, its auditor, over mistakes in its latest accounts, The Times explains.
Plans for a massive $6bn (£3.6bn) investment programme to develop a potash mining venture in North Yorkshire and create up to 1,100 jobs have been announced after studies showed the ambitious development was viable. Sirius Minerals, an Aim-listed business, is confident it can raise the money to finance what will be Britain’s biggest mining venture since the days of coal. Talks are under way to raise an initial $2.5bn to enable production to start in 2017 at the rate of 1.4m tonnes a year. Chris Fraser, chief executive, is seeking a mixture of debt and equity to help fund the development but is also considering bringing in potential customers and other potash producers, The Telegraph writes.
Sterling climbed to its highest level against the euro in almost two years on Monday as concerns grew in the financial markets about the deepening crisis in the single currency. A pound at one stage bought more than €1.23 on the foreign exchanges – making foreign holidays cheaper but UK exports to the single-currency zone more expensive. Fears that “austerity fatigue” is setting in among voters were heightened after figures were released showing that Spain – the country thought to be next in line for a bailout – has slid back into recession. The pound was also stronger against the US dollar, where last week’s weaker-than-expected growth figures for the first three months of 2012 were followed by a closely watched barometer of business in Chicago, The Guardian says.
David Cameron raised the spectre of the collapse of the euro and years more economic turmoil yesterday as he confronted his deepest political crisis since entering Downing Street. The Prime Minister warned the debt crisis across the Continent was not even halfway through, blaming the EU’s woes for Britain’s double dip recession. With support for the Conservatives at its lowest ebb since 2004, just days before crucial London mayoral and local council elections, Mr Cameron promised to ‘strain every sinew’ to prompt economic growth, The Daily Mail reports.
Lloyds is understood to have received an initial multi-billion-pound bid approach for Scottish Widows, its life assurance, pensions and savings business. The approach has come from Edmund Truell, the founder of private equity firm Duke Street, who is currently bringing his £500m bid vehicle Tungsten to the stock market. Analysts said that Scottish Widows could be worth between £5bn and £6bn. Lloyds, which reports its first quarter figures today, is believed to have received a number of other approaches for Scottish Widows recently, The Independent reports.
