It was a day of rejoice for the share markets, as the London’s leading share index recorded its biggest one-day gain soon after the announcement by the US Treasury Secretary Hank Paulsons that government would spend “hundreds of billions” of dollars to remove illiquid assets which led to global financial crisis.
The tumultuous week for the financial markets ended with FTSE rocketing 431.3 points to 5311.3, recording its biggest rise of 8.8% since establishment in 1984. The rise contributed to addition of £103 billion to Britain’s biggest companies’ value.
The dramatic rise came as a result of a temporary suspension on short-selling of financial shares and the vow by the US government to remove illiquid mortgage-backed assets which crumbled world financial markets.
The decision by the US government could have far reaching effects on the global economy. According to Hank Paulson, the mortgage assets had been clogging up banks’ balance-sheets and blocked vital credit flow. He stated that a programme was essential to remove illiquid assets, which weighed down financial institutions and threatened economy.
Anthony Grech, at IG Index, described 19th September as the most incredible day of an exciting financial week.
CMC markets reported trading of 3.92 billion Footsie company shares compared to 1.3 billion traded last Friday.
The huge rise took FTSE 100 index almost back to beginning of week when it stood at 5416.
Engineering giant, GKN, will be buying part of the Airbus factory in Bristol for £136m, as per a deal announced a few days ago. Manufacturing operations at the Filton plant, which produces wing components for Airbus, will be acquired by GKN.
The deal was hailed as “fantastic news” for British manufacturing by the union group, Unite. The union claimed that the deal would help in securing the UK aerospace industry for decades. Airbus was engaged in negotiations over the deal with GKN for months, amidst speculations that a final decision was getting delayed over price and commitment to provide future work to the factory on its pending A350 aircraft. The sale of the factory was mooted by the parent company EADS as part of its restructuring programme.
According to the GKN chief executive, Sir Kevin Smith, acquisition of wing components and the assembly facilities at Filton was an exciting development in GKN’s aerospace business. Sir Kevin Smith added that strategic logic and a strong order backlog compelled a long-term business partnership of GKN with Airbus. He remarked the position of the A350 XWB created prospects of future growth at the leading edge of composite manufacturing technology.
Filton has already acquired excellence in the manufacture of Airbus’s metallic structures and GKN intends to invest more in operations to transform Filton into centre for serving global aerospace market for composite wing structures.
The collapse of XL, the third largest holiday company in Britain has triggered fears of bankruptcy among airlines. The chief executive of British Airways warned that 30 more airlines are heading towards bankruptcy before Christmas due to soaring fuel costs and global economic downturn.
According to Willie Walsh, the travel industry is passing through the worst trading environment. He expressed concerns that a similar number of airlines which closed this year would be the casualties of bankruptcy worldwide, over the next 4 months. He announced 1,400 redundancies at British Airways.
The industry experts apprehend that smaller tour operators and airlines would be the worst affected and cautioned passengers to book only with those who could return their money in case of bankruptcy.
According to aviation consultant John Strickland, at JLS Consulting, the chances of failure in coming months were more with the UK carriers, which are not cash-rich like British Airways and Ryanair, to sustain the rising fuel costs.
This year was more difficult for the travel sector due to a big slump in sales, economic slowdown in the UK and the phenomenal rise in costs of travel companies and airlines due to the doubling of jet fuel prices. TUI Travel and Thomas Cook, the biggest tour operators in Britain have announced cutting of 8% in the number of holidays on offer for next summer. BA and Ryanair announced capacity reduction during winter season, but smaller players lack the resources to survive in the difficult period.
The placement of Lehman Brother’s UK arm into administration has put thousands of UK’s jobs at risk. The Lehman’s US holding company filed for bankruptcy protection under Chapter 11. According to the partner of administrator PricewaterhouseCooper (PWC), Tony Lomas, Lehman group was managing its funding on global basis and the UK trading operation could not meet its obligations due to drying up of funds.
Lehman Brother employs 5,000 people in the UK.
PWC, which was appointed administrator for Lehman Brothers International (Europe), stated that it was working on business wind up in an orderly manner. Lehman Brothers has suffered sub-prime mortgage losses worth billions of dollars. Its UK collapse and US bankruptcy has made it the biggest casualty of the financial crisis which the global markets have been facing over the past year.
The staff at offices in High Wycombe, Birminghamshire did not know about the impact of collapse on their jobs. No one was told anything about the developments hence everyone was turning up for work as usual. A woman worker said that she was hoping for the best.
According to Angela Knight, chief executive of the British Bankers’ Association, Lehman Brothers was a small investment bank in the UK which did not take retail deposits. She asserted that no UK banks were facing situations similar to the Lehman Brothers.
The government-commissioned a report, it recommended that the UK’s Internet and Telecom companies should pay for the development of Britain’s next level broadband infrastructure.
The former chief executive of Cable & Wireless, Francisco Caio, who wrote t he report last February, mentioned that costs to be incurred in delivering “Next Generation Access” (NGA) to broadband to gain leading online economy position for Britain should be borne by the private sector.
Caio, now vice-chairman of Lehman Brothers, asserted that the government need not intervene in investment at this stage since there was little evidence that the UK would suffer from the lack of next-generation access network in the short term.
He concluded that the case for public intervention at this time was not strong enough but it was right time to create conditions for delivering NGA infrastructure in the next 5 years.
Caio made a few key recommendations:
1. Government should open up two parts of radio spectrum for enabling wireless internet access.
2. Government and construction industry should work jointly to install next-generation broadband in all new homes.
3. Government should allow broadband delivery via overhead cables by relaxing planning rules.
The report did not receive wide acceptance. The Country Land and Business Association expressed that Britain was losing competitive edge due to delays in providing broadband infrastructure.
Charles Trotman of CLA felt that the future of British Industry depended on broadband. While rest of the world would get on with it, British hopes would be smothered by conflicting reports.
Faith Shoes, the high-street chain with 85 stores across the UK, is being bought by the Scottish entrepreneur John Kinnaird in partnership with an investment fund Agilo, which targets ailing companies. Faith Shoes was put up for auction due to serious financial difficulties. The buy out could save up to 2,000 jobs.
Though the details are being worked out before takeover announcement, a source reported that it was “a done deal” that would save 2,000 employees from losing their jobs as they would get transferred to the new owners Mr. Kinnaird, who won the auction on best price and fit, would most likely be merging the business with Envy, his clothing firm, and Chilli Pepper, the Agilo’s teenage girl’s fashion brand.
Mr. Kinnaird is the former owner of Dolcis Shoes, which was backed by private equity Epic, which parted company during difficult times for the shoe retailers. Faith Shoes was owned by a private equity group Bridgepoint Capital, which bought it in 2004 from the son of founder Samuel Faith for £64m. Samuel had launched Faith in 1964.
Bridgepoint ran into funding problems after injecting £15m of working capital in Faith Shoes. Bridgepoint sought another £8m injection from Barclays Bank which held Faith’s debt. Talks failed and the bank seeing no other option, put it into administration and organised the auction.
The heavyweight retailers John Lewis and Home Retail Group warned of fall in profits under the impact of housing slump and dwindling consumer confidence. John Lewis Partnership, the retail chain owns department stores and grocery chain Waitrose across the UK. Though the overall sales rose marginally to £3.27bn, it reported a steep fall of £107.3m in the pre-tax profits during six months of 2008, for the first time in its history of past 9 years.
The group predicted a bleak outlook, forecasting no improvement in the economy over the next eighteen months. It blamed slump in the housing market which contributed to fall in home-ware sales at department stores forcing it to offer heavy discounts in Waitrose.
According to the chairman of John Lewis Partnership, Charlie Mayfield, the economic climate became more difficult since the initial shock of the credit crunch. It hit the consumer confidence to the lowest level and resulted in the slowdown of the retail market. He predicted challenging times for 2009 but added that the group was in a position to bounce back when the consumer confidence would recover.
The group would focus on new food lines at Waitrose and fashion lines at John Lewis and fashion lines home goods in the run-up to Christmas.
A unique project for BBC News, spanning over a year, will unravel the tale of international trade and globalisation. The project has been named ‘The Box’ from a fantastic publication of the same title by Marc Levinson that informs the story of how the humble, ubiquitous shipping container changed the whole face of world trade.
A team of experts have worked together to make this ambitious idea materialise.
The experiment has been made possible owing to the CSIS, a body that represents the container shipping industry worldwide. The representative body has helped with the entire planning, and also the project logistics.
Mentioning the journey of the Box, the editor of BBC business and economics centre, Jeremy Hillman, states, “From the start of the voyage in Southampton this exciting journey will be a real one. Whilst we are controlling some aspects of the process for pure logistical reasons, the story it will tell will be a truly representative one. It will paint a picture of what globalisation really means to us. We are keeping our fingers crossed that the Box does not fall overboard.”
One can only wonder what the cargo insurance value and shipping costs for “The Box” are. The project will give us a better perspective of what ties all countries and continents together.
The UK-based pharmaceutical company, GlaxoSmithKline, intends to reopen negotiations with the Department of Health, for the reversal of decision by the National Health Service regarding GSK’s cancer medicine Tyverb.
The company is likely to offer a “price-volume” deal, which would address concerns of the government’s medicine advisory board regarding the high cost of the drug in comparison with its benefits to the patients.
GSK’s Tyverb has already been approved by the European regulator for treatment of late-stage breast cancer. It was launched last year in the US under the name Tyverb, but met with greater resistance in the UK.
A ruling, by the National Institute for Health and Clinical excellence (Nice), against Tyverb, halted the use of medicine in the UK. In fact, Nice made series of rejections of cancer drugs for high prices, including Avastin from Roche of Switzerland and Erbitux from Merck of Germany.
GSK has come out with an innovative price proposal for Tyverb. It is suggesting NHS to put a cap on the total cost of the medicine irrespective of number of patients using it. It proposes a fixed price which would cover the drug cost for several thousand patients. GSK estimates that 70% of the UK patients who fail to get relief through other treatments including Herceptin, would benefit from Tyverb.
The Government responded to the concerns of manufacturing sector by unveiling a strategy of bringing together £150m support for the companies. Ministers stated their intentions in helping manufacturers to tide over the demanding situation while citing good reasons for a better future.
The Government maintained that flexibility and openness which are the hallmarks of Britain’s markets, would allow the businesses to face current challenges successfully. Business Secretary John Hutton emphasised the importance of manufacturing to the success of the UK economy and insisted that its foundations had to be right for enduring the current economic slowdown to emerge fitter and stronger than ever. He wanted the UK to make best use of opportunities thrown up by the move for low carbon economy. He expressed confidence in the UK becoming world leaders in green technologies, which could result in creation of thousands of green collar jobs.
He acknowledged that industry’s success did not get public recognition for many years and it was time to redress the balance. He emphasised importance of attracting, nurturing and developing young talented people into the industry.
The Government has proposed a new drive to assist nuclear and renewable industries for future expansion which would create 260,000 new jobs in the next 10 years. Government also announced an extra 1,500 manufacturing apprenticeships and setting up of manufacturing technology centre in Coventry for £130m investment in research in the next decade. A new manufacturing body would also be constituted to attract youngsters into a career in industry.