July News in Brief: A Monthly Round-Up

By Haider Ali

Posted: 31st July 2012 08:49

July has been a hotbed for financial scandal, but an exciting month nonetheless that seen top executives forced out, banks hit with hefty fines for rate-rigging and links between top brass banks and criminal organisations being exposed.  We will be the first to admit we are intrigued to see where this will go in the months ahead, but for now here is a round up of all the big stories
 
Libor Scandal Leave Banks in a Quagmire
 
Over the course of the month a scandal unravelled leaving major high street banks facing tumult.  A scandal of epic proportions, which saw traders and individual bankers rigging the Libor rate, in direct violation of codes of conduct and financial laws. 
 
The first of the major banks that was exposed was Barclay’s.  After news broke of rate-rigging – which had taken place over the past decade – the Financial Services Authority decided to strike the bank with a hefty £290 million fine.  Many feel however this is a drop in a vast ocean compared to the hundreds of billions of pounds in profits that the bank made through derivatives.
 
Many other banks were named in the report and are going to share a similar fate.  HSBC for instance has been found laundering money for Mexican drug lords by dealing with their firms.  Claims that they did deals with businesses that were backed by terrorists and that transactions were concealed have also been mooted, though not substantiated.  This will lead to further casualties in the upper echelons of the banking world.
 
Bob Diamond Forced Out of Barclays Banks
 
Speaking of casualties, the biggest news to break in the city – in light of the humiliation – was the “resignation” of Bob Diamond.  The former chief executive was obstinate in his stance and adamant he would not be leaving the banking giant despite the financial mishaps taking place under his watch.
 
After appearing before a Treasury Select Committee where he defended his position and stated he had no awareness of rate-rigging taking place, a few days later he was gone.  News filtering down the grapevine was governor of the Bank of England Mervyn King had applied some influence on the Barclays board to have Diamond dismissed because his position had become untenable. 
 
It was said that the board was split in their decision because of the vast profits that Diamond had managed to yield for Barclays.  What appears more than likely is his replacement will be coming from within the Barclays contingent.
 
Eurozone Plunges into Further Crisis
 
Ireland and Portugal were already on the cusp of a financial meltdown and their economy needed rejuvenating.  Through loans designated by the European Central Bank, they were given monies to help stabilise their respective economies and then to grow.  The same formula is being offered for Greece who are widely expected to accept it.  They have to be aware that growth will be minimal if there is any to report on at all.
 
The latest country to require a bailout has been Spain.  They have struggled to get a foothold during the recession that has seen gradual unemployment reach all time highs especially amongst the 18-24 age brackets.  The Spanish too have been granted a stimulus package from the European Central Bank in excess of €60 billion.  There is also talk of Italy soon needing help from Brussels as they are deep in debt.  One by one like a row of dominoes, states are falling over succumbing to debt and the interest required servicing them.  Expect this one to stick around for a long time to come.
 
United Kingdom Economy
 
George Osborne to Inject Economy with Much Needed Cash
 
Instead of turning to Europe, Osborne has reneged on his previous course of action to deal with the struggling economy.  Against the idea of printing more money to help make the economy more fluid, he advocated higher taxes and budget cuts. 
 
The about-turn has come on the back of IMF quarterly forecasts which cut the United Kingdom’s predicted growth of 0.8% to 0.2%.  His lending scheme comes with relaxed interest loans to small businesses that will use the cash to improve infrastructure and employ more people.  The Chancellor of the Exchequer has drawn heavy criticism for not taking this course of action from the moment his government came to office, as economists feel the UK’s economy would have looked far rosier than it is now.
 
Jaguar Looking to Expand in the United Kingdom
 
On a brighter note Jaguar Land Rover is expected to bring joy to the Midlands region with news of further jobs being available.  The Midlands has been the hardest hit part of the United Kingdom during the recession and the news is sure to be welcomed.  With the factory plant in Castle Bromwich due for expansion, Jaguar Land Rover announced that they would be providing up to 1,100 jobs.
 
Three pertinent models of the Jaguar are made at the factory plant in Birmingham and are exposed to over a hundred markets worldwide.  The allure of its brand name and the beauty of the car itself are sure to keep wealthy customers interested in purchasing the motor machine and keeping jobs intact in the meantime. 
 
Sir Phillip Green Viewing Global Takeover via Arcadia
 
Sir Philip Green, the owner of popular high street stores like Topman and Topshop is expanding his own empire by sealing contracts to export clothes from his stores to popular American department stores.  The deal with Nordstrom department store in particular is likely to yield returns of up to $100 million per year. 
 
His growing empire is a testament to his entrepreneurial skills that has seen his company Arcadia open Topman and Topshop stores across fashion city hotspots in the United States such as New York, Chicago and Las Vegas.  There are now talks to open one in Los Angeles later this year and the sky is clearly the limit for the billionaire magnate. 
 
Investment News
 
Apple Feeling the Squeeze
 
Even the technology giant Apple is not immune from missing its quarterly targets.  Economic pressures in Europe have led to less than remarkable figures as the world’s largest company via marketing capitalisation missed its target between April and June.  Shares went down just over five per cent last night and showed no signs of making immediate improvements.
 
Speculators will be wary that the latest model off the Apple assembly line sold two million lesser phones than expected.  Corporate spokesmen for the company produced the usual spiel about internet rumours playing a part about the phone’s delay which put customers off, but investors will be less than impressed with the sales figures produced in France, Italy and Germany.  They will certainly hope that the next quarterly figures produce results that the behemoth is certainly more familiar with.
 
Iranian Oil Exports Increasing Despite US Sanctions
 
Iran, which was placed under the most vehement of sanctions at the start of the year by the United States, has managed to stave off the economic bite and increase its oil revenues by shunning Europe.  It has instead increased its sales to China, India and lately Japan, providing the country with great relief.
 
There were great fears that the country would become decrepit as sanctions would eventually bite but Iran’s nationalised oil companies have boasted of their oil exports increasing two-fold, especially to Japan this past month.  Murmurings have rippled across stock markets that the Iranians are looking to explore two new oil fields and to tap into its natural gas reserves, which come in abundance.  This would open its doors to new markets and alert potential speculators into investing in Iranian companies via loopholes, which have to be exploited due to the stringent sanctions that are still in place.
 
United Arab Emirates Relaxes Solvency Laws
 
The Middle East has been a hot-spot for investors because of their vast oil and fossil fuel reserves.  Most of the world’s markets are dependent on the Middle East because oil is the energy preference of world businesses and transport.  But all of this was of no use during the recession as even their markets were exposed to debt.  Dubai was the worst hit in the region and growth all but came to an abrupt halt, something that was unthinkable in this part of the world.
 
But the changing of solvency laws by the United Arab Emirates has given companies and investors more assurance.  Companies in the past that were liquidated would face the problems of having their assets frozen, no bail-outs in place and having a detrimental affect on society via job losses and such.  The amendment to the solvency law allows companies to still operate even if they were in deep debt.  The process in which decisions are made on companies being liquidated or given an extended period of time to make good on their debts has also sped up.  All of these decisions have amalgamated into making the UAE an intriguing part of the world to invest in again.
 
Rest of the West News
 
Kenya Finally Realising Her Potential
 
Marathon Oil Corp has seized the opportunity to make headways into Kenya’s natural resources.  A country known to the world for its luxurious wildlife, environmentalists will fear the worst knowing that the two sites soon to be drilled for oil exploration are both onshore.  Marathon Oil Corp is seeking to invest in Kenya by buying out Africa Oil Corp’s vested interest in the north-west region of the country.
 
The figures being banded about are pretty wholesome.  Some sources say $43.5 million has enabled them to purchase Africa Oil Corp’s allotted share of north-west Kenya and should also cover overhead expenditures.  Marathon Oil Corp’s shares have gone backwards in the past 5 years, falling a further three per cent last week. 
 
But news of significant investment is sure to boost their share price and see them grow in stature.  There have also been talks of both oil companies looking to explore Ethiopia for fossil fuels, which will also come as good news to both sets of investors.
                            
China Starting to Cut Interest Rates
 
News of China’s manufacturing sector starting to experience difficulty has led to the Communist government to take decisive action by cutting interest rates for the second time in a year.  The rates are an all time low going by China’s history with lending rates down to an astonishing six per cent and deposit rates down to three per cent. 
 
The unprecedented move is hoped to stave off any need for a stimulus package later on in the year.  There are hopes the move to cut interest rates will help revive an economy that has become a little stagnant compared to previous years, though there should not be any cause for alarm yet.  This is just the start of what is expected to be an easing of measures to help give the Chinese economy an adrenalin shot to the arm to help boost growth. 
 
Brazilian Economy Recovery not going to Plan
 
Brazil is Latin America’s largest economy and great things are expected from the rising power in regards to investment as it starts to ease itself out of recession.  Having rebounded in 2009 to grow three per cent via its GDP, it has struggled to match the expectations that were predicted.  Consumer confidence has fallen for the third straight month as the economy starts to look a little less optimistic than first thought. 
 
Most of the jobs being offered are through services and they have managed to maintain low records of unemployment compared to previous Brazilian governments, which is excellent news.  However still the predicament exists pertaining the economy which itself is sapping consumer confidence as index levels seem to indicate.  In July its consumer confidence index fell from 123.5 to 121.6 and looks likely to get worse. 
 
Predictions of its economy only growing 0.1% have been justified, though there is still a significant amount of time left until the end of the year.  On a positive note Brazil, which managed to overtake the United Kingdom as the world’s sixth largest economy earlier this year, has managed to maintain its position.
  
July has certainly been a frenzied month.  The doom and gloom will certainly be around for a while, but hopefully next month the financial world can get back on its feet with news of sound investments yielding high dividends for shareholders making headlines.


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