Business this week
Apr 24th 2008 |
UBS made public a summary of an internal investigation into the mistakes that led it to write down a total of $38 billion, the most by any European bank hit by the subprime crisis. The company laid most of the blame on positions taken by its investment-banking arm. To rebuild its fortunes, the Swiss bank is reducing the size of its investment-banking business to refocus on its private-client base. See article
Other banks added to the list of woes stemming from the mortgage markets. Credit Suisse, UBS's rival, swung to a loss in the first quarter largely because it took SFr5.3 billion ($5.0 billion) in writedowns. Bank of America said its first-quarter profit had fallen by 77% compared with a year ago, and that it would increase its provision for credit losses by $5 billion. Citigroup booked another $13 billion in writedowns and made a quarterly loss of $5.1 billion. And Royal Bank of Scotland said it needed to raise £12 billion ($24 billion), about a third of its market value, in a rights issue to help protect its core capital. See article
Use it wisely
The Bank of England unveiled an initiative that will allow British banks over the next six months to swap high-quality mortgage-backed and other securities for Treasury bills for up to three years. The central bank estimated that around £50 billion ($100 billion) of such assets would be swapped at first. It emphasised that the plan was not intended to finance new mortgage lending, a view which seemed to be contradicted by the chancellor, Alistair Darling, in his statement to Parliament on the scheme. See article
Meanwhile, a survey from the British Bankers' Association found that the number of approvals for house purchases fell by 46% in the 12 months to March and was at its lowest since the series began in 1997.
Analysts renewed speculation about whether Société Générale would be subject to a takeover bid after the French bank said that Daniel Bouton would step down as chief executive (he remains chairman). Mr Bouton, who was roundly criticised for the rogue-trading scandal that embroiled SocGen in January, would like the bank to remain independent.
What goes up can come down
In an effort to revive investor confidence, China reduced its stamp duty on share trading to 0.1% from 0.3%. The tax was increased in May 2007 to cool feverish stockmarkets. Since then the government has made fighting inflation its top priority, causing some to worry that economic growth will slow. However, investors responded positively to the cut in stamp duty, at least at first. The Shanghai Composite Index had fallen by half since last October; the day after the tax cut was announced, it leapt by 9.3%.
South Korea's corporate world was rocked by the announcement that Lee Kun-hee would resign as chairman of Samsung Group after his indictment for tax evasion. Mr Lee, whose father founded Samsung in 1938, has run South Korea's biggest chaebol since 1987. His is the biggest scalp in a nascent anti-corruption drive, which has frustrated campaigners because so few culprits have resigned. See article
Liberty Mutual, an insurer based in Boston, agreed to buy Safeco, a rival from Seattle, for $6.2 billion.
Amyris, an American biotechnology company, announced a plan to make biodiesel from sugar cane in collaboration with Crystalsev, a Brazilian firm. Amyris has created a micro-organism that contains genes from several different biological species, and can convert sugar into molecules similar to those in mineral-based diesel fuel—an example of a so-called second-generation biofuel. The new fuel should be on the market in 2010.
A game of monopoly
The Competition Commission published its interim report on BAA, operator of Heathrow, Gatwick and Stansted airports. The British antitrust watchdog said BAA's control of the three airports, which all serve London, might not be in the interests of consumers and airlines. It will give its provisional opinion in August. BAA, which is owned by Spain's Ferrovial, a construction company, has attracted criticism recently for poor service at some of its terminals. See article
Delta Air Lines reported a net loss of $6.4 billion in the first quarter. Northwest Airlines, with which Delta is pursuing a merger, lost $4.1 billion. Both companies have suffered from rising fuel prices.
The Indian Premier League, a new venture in cricket, got under way. Privately owned teams based in eight cities, with a mixture of foreign and Indian stars allocated by auction, are playing Twenty20, a short form of the game lasting a mere three hours. The tournament will run for seven weeks.
This article appeared in the The world this week section of the print edition under the headline "Business this week"
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