The Bank of England has rebuffed claims that its new Funding for Lending Scheme is failing after official figures revealed a contraction in the mortgage market and a higher cost of borrowing. The Bank said that it was “unrealistic” to expect an immediate boost to lending from the programme, which came into effect in August after being announced by Sir Mervyn King, the Governor, in June’s Mansion House speech. Commercial lenders have received their first tranches of funding under the scheme, but it will take some time before the benefits flow through to lending volumes, according to the Bank, The Times reports.
The £49bn mega-merger between commodities trader Glencore andmining group Xstrata has hit the rocks again, hours after the Anglo-Swiss miner gave its blessing to the deal. Two of Xstrata’s large shareholders – Knight Vinke Asset Management and Threadneedle Investments – have attacked the company’s board for agreeing to the deal, which they say gives away the miner’s future profits “on the cheap” and gives bosses “extraordinary executive payments”. “It was with considerable disappointment that we read this morning’s announcement that the proposed merger with Glencore is to be recommended,” Iain Richards, head of governance and responsible investment at Threadneedle Investments, said in a letter to Xstrata’s board.
Xstrata’s novel structure for its long-awaited merger with Glencore has gained further shareholder support, with several top investors in the mining group privately saying they will now back the combination. The new offer gives investors in Xstrata the chance to vote against a contentious payout package designed to retain the miner’s senior executives without blocking the deal. The payouts have divided the miner’s shareholders since they were announced this year. The changes, announced Monday, appear enough to secure the backing of Qatar Holding, BlackRock and Legal & General, the biggest independent shareholders in Xstrata, in spite of their different views about the payouts, said people familiar with the situation, The Financial Times explains.
Spain is ready to request a Eurozone bailout for its public finances as early as next weekend but Germany has signalled that it should hold off, European officials said. The latest twist in the Eurozone’s three-year-old sovereign debt crisis comes as financial markets and some other European partners are pressuring Madrid to seek a rescue programme that would trigger European Central Bank buying of its bonds. “The Spanish were a bit hesitant but now they are ready to request aid,” a senior European source told Reuters on Monday. Three other senior Eurozone sources confirmed the shift in the Spanish position, all speaking on condition of anonymity because they were not authorised to discuss the matter. German Finance Minister Wolfgang Schaeuble has said Spain is taking all the right steps to overcome its fiscal problems and does not need a bailout, arguing that investors will recognise and reward Spanish reforms in due course, The Telegraph reports.
New York Attorney General Eric Schneiderman has filed a lawsuit against JPMorgan Chase for fraud over faulty mortgage-backed securities packaged and sold by the former Bear Stearns. It was the first action to come out of a working group created by President Barack Obama to go after alleged wrongdoing in the financial crisis, Reuters reported. JPMorgan, which bought one-time rival Bear Stearns for $2 a share in March 2008, said in a statement it intended to contest the allegations.The lawsuit alleged a “systematic abandonment of underwriting guidelines” in the selling of home loans that went into securities peddled by Bear Stearns. In its statement, JPMorgan noted that the allegations concern actions by Bear Stearns before it was acquired by JPMorgan. “The NYAG civil action relates to Bear Stearns, which we acquired over the course of a weekend at the behest of the US Government. This complaint is entirely about historic conduct by that entity,” the statement said, according to The Telegraph.
Bank profits from new mortgages have soared since the Federal Reserve began its third round of bond purchases two weeks ago, fuelling the debate over the fallout of the latest dose of quantitative easing. The extent to which QE3 drives down new mortgage rates and helps homeowners or is pocketed by banks will be crucial to the success of the policy and the prospects for growth in the US and global economies next year. The rise in profit earned by banks from creating new mortgages came as Fed chairman Ben Bernanke sought to defend QE3 against attacks from Republican presidential candidate Mitt Romney and other critics. Mr Romney said last week the Fed was keeping interest rates “artificially low,” The Financial Times says.