The Euro recorded a new high against the dollar on Thursday, after announcements from the European Central Bank, much like the Bank of England, kept the interest rates steady at 4%. The rates have been constant at 4% since June 2007.
ECB president Jean-Claude Trichet stated at the post-decision press conference that there was a “strong upward pressure on inflation”, and reaffirmed that “the current monetary policy stance will contribute” to controlling inflation. Mr. Trichet added that the decision to leave rates unchanged was unanimous and that no reduction in rates can be expected for several months.
As compared to the Bank of England, ECB have their task cut out for them, having to deal with higher inflation and lower growth rates than those in the UK. The rising euro has especially contributed to a marked drop in growth. Also, appreciating prices of commodities and food prices have further contributed to inflation in the European region pushing it to a 14 year high of 3.2%.
It is expected that the U.S. reserve bank will cut its rates faster than ECB, the amount is expected to be almost 0.75% to bring the U.S. rates down to 2.25%.
The euro is now up 17% compared to the dollar and may mark an unexpected turn of fortunes for the euro which is now fast expected to replace the dollar as the world’s reserve currency.
The disastrous economic situation in the U.S. has claimed another casualty. This time, the affected one is Taylor Wimpey, the second largest UK based house builder. Forced to make a write-down amounting to ₤300 million on trading in the US, Taylor Wimpey has closed with a loss of ₤19.5 million at the end of 2007 as compared to a ₤406 million profit at the end of the year 2006.
Taylor Wimpey was formed last July subsequent to a merger between Taylor Woodrow and George Wimpey. The company explained that their losses were primarily due to a massive slump in the U.S. property markets where they managed to sell 25% fewer homes than the previous year. Almost ₤283 million of their ₤300 million write-down were due to the devaluation of land bank and building projects in the U.S. While the company does not expect the U.S. markets to improve much this year, they appreciate that the U.S. is an important market for them in the long run. They have however, cut down their U.S. exposure by nearly half.
Taylor Wimpey also incurred losses in their Spanish ventures where profits dipped by two-thirds to approximately ₤8 million. Their Spanish write-down amounted to ₤6 million.
Although the company fared much better in UK than in other countries, largely due to the increase in rates of Taylor Wimpey homes, they were not too encouraged by property trends in the start of 2008.
Taylor Wimpey’s profits at the end of 2007 were ₤535 million as opposed to ₤776.5 million in 2006. They have however, raised their dividend by a penny to 15.75p, while suspending a share buy-back scheme.
In the midst of a well acknowledged economic slow down, The Bank Of England has announced its decision to keep interest rates constant at 5.25% but is expected to cut them mid year to help the economy that is bracing itself to brave a credit crunch.
This decision was almost unanimously expected with only 1 of 65 analysts polling otherwise. The bank had cut rates twice in the past three months. In the face of growing inflation, higher than the 2% target, the bank has said that any further reduction in rates will be gradual.
In the meantime, the economy has continued to weaken especially in the housing market with decreasing consumer confidence even as the U.S. economy is inching closer towards recession.
British Airways rues a possible drop in earnings due to the high operation costs in terms of fuel; expenditure, a general slump in the economy and the cost of building the ambitious Terminal 5 at Heathrow Airport.
BA expects a rise in revenue of 4% to 4.5% to more than 9 pounds by March 2009. However along side that fuel costs are expected to increase by ₤450 million to an astounding ₤2.5 billion, that is a roughly 20% increase, which will be in addition to non-fuel costs expecting to rise by nearly 3%. As a result of this BA expects an operating margin of only 7% for the financial year 2008-2009.
BA plans to move more than 90% of its operations to Terminal 5 of Heathrow Airport.
BA had stated earlier this month that passenger traffic was up nearly 5.3% compared to last year with a 15.1% increase in business and first class travelers. BA may also face a potential pilot strike to protest the operations of BA Open Skies with pilots on inferior terms as compared with existing pilots.
In probably what is going to be the biggest news of the week, after a reign of an astounding 13 years at the top, Bill Gates has fallen from his position as the richest person in the world. Stepping into his throne is American investor Warren Buffett.
Gates was the richest man until February but his stocks nose-dived after the Yahoo bid was announced and he can very well attribute the fall to the bid. Forbes indicated that if it wasn’t for the Yahoo bid, Gates would have likely retained his #1 ranking which has now come down to #3.
Second on the list, worth $60 billion, is Mexican telecommunications mogul Carlos Slim Helu.
Also in Forbes richest people in the world list is the appearance of Mark Zuckerburg, 23, founder of Facebook, who has become the youngest self-made billionaire to make the exclusive list. Yet his ranking of #785 out of the record 1,125 billionaires internationally and his $1.5 billion fortune doesn’t even rank him in the top 20 in Silicon Valley.
Although US has the most billionaires of any country, foreign billionaires outnumbered American billionaires 656 to 469. Foreign billionaires together were worth more as well: $2.8 trillion to $1.6 trillion
The BT group will provide the entire Internet and landline links for the London Olympics that will be held in 2012. This deal was forged on the condition that BT will have the exclusive marketing rights for the games.
The London Organising Committee of The Olympic and Paralympic Games (LOCOG), the organization that is responsible for organizing the games has been in the process of appointing partners for the games and BT is the latest tier one partner aside four that have already been signed on.
This 50 million pounds deal will cover all communications including those for the workforce, the venue, athletes, media and the national Olympic committee. This amount is however unconfirmed by BT.
The Games Chief has targeted raising 650 million pounds from sponsorship deals.
In some good news for one of Britain’s largest banks, HSBC has received an all clear from South Korea’s Fair Trade Commission, in its bid to acquire a controlling stake in the Korea Exchange Bank (KEB). Though this comes a relief to HSBC, there still are a number of major hurdles to clear in this $6.3 billion deal. These include legal hassles with stake owner Lone star and financial Services commission that have maintained that they will not give the go ahead unless all the legal issues regarding Lone star’s investment in the bank have been sorted out.
After losing out to rivals CitiGroup and Standard chartered, HSBC is sure to pin their hope on KEB, it being the sixth largest bank in Asia’s third largest banking market. After agreeing to buy 51.02% of KEB from Lone Star last September, the deal will only be complete subject to agreement from the Fair Trade commission and the Financial Service commission. But owing to a government shuffle it does not seem likely that anyone will be ready to address this sensitive issue. As it stands today it is very unlikely that the April 30th deadline may be met and the deal has a high possibility of falling through.
ITV claims that it expects net advertising revenue to be up almost 2% in the first quarter this year as opposed to a total TV market decrease of almost 0.7%. This comes in the wake of the fact that ITV posted a 17% drop in earnings in 2007 as a result of digital investment and differences over premium rate phone ins.
Broadcaster ITV and its family of channels have to their credit hit soap Coronation Street and the talent show X Factor. ITV says that they had a net advertising revenue of 1.49 billion pounds last year but are encouraged by the fact that 2007 proved to be the year in which its total viewing has increased year on year the first time since the early 19990s. Its share of commercial TV in 2008 has been steady at 41.5 % so far.
The Underlying Earnings Before Interest, Tax and Amortisation (EBITA) for the year were down to 311 million pounds as compared to 375 million pounds. Analysts expect revenues of 2.09 billion pounds and an EBITA of 306 million pounds. The board of ITV has pegged the final dividend at 1.8 pence a share.
The UK government has decided to put its Tote state owned bookmaker on the market for sale after declining an offer from a racing industry group.
Tote runs Britain’s pool betting system with a network of 540 betting shops in retail locations and 59 on site at race courses. An advisory body will soon be appointed to consider the options available for tote while the government intends to start taking up offers as soon as possible.
Among the various gambling firms that may be interested in Tote, two are automatically off the list thanks to Competition laws. These two are William Hall and Ladbrokes. Other private firms that have expressed interest in buying the business whole are BetFred and Paddy Power.
This decision marks the latest development in a story that has been running for nearly three years. Tote was initially to be sold to the racing industry in 2001 but the price was too low and the transaction was not allowed as it nearly equaled state aid. After PricewaterhouseCoopers had estimated Tote’s net worth at 400 million pounds, a number of companies have tried to offer bids to buy Tote over.
Infosys chief mentor Murthy has been appointed as a Director by British banking giant HSBC. Come May I, 2008, Nagavara Ramarao Narayaana Murthy, 61, will be independent, non-executive director of HSBC Holdings Plc , which is the UK’s largest banking business.
Vikram Pundit’s, appointment as CEO of Citigroup was another high-profile appointment. Indra Nooyi, Indian born, is chairman and CEO of Pepsi Co.
Even though, according to the Bank, will not have service contract, and will be paid a director’s fee of $65,000 per annum. This was authorized by shareholders at the 2006 annual general meeting, the bank revealed. Initially, Mr. Murthy’s appointment is for three years and will expire by 2011. Oracle’s Safra Catz is also appointed as a non-executive director.
HSBC faces challenges in North America as a result of the housing market troubles and associated credit crunch. and as a result HSBC had to write off $8.7bn from bad debts and investments linked to credit crunch. Even after the set back of bad debts, group has reported a 10 per cent rise in pre-tax profits to $12.2bn.Due to adverse effects of US sub-prime housing market crisis, HSBC losses touched 63 per cent in 2007. The strong performance in Asia helped to offset the severe loss some what.
HSBC group chairman Mr. Stephen Green said:”2007 was a year when large parts of the international financial system were strained. For HSBC to achieve new high in earnings, despite these conditions and the weak performance of our US business, underscores the value of the strategic focus we announced early last year to drive sustainable growth by concentrating on the faster growing markets of the world.”