Markets jittery ahead of US stimulus vote
Further details on the US Treasury's stimulus plan, a larger-than-expected loss at UBS, and apologies from former HBOS and RBS management keep investors trading cautiously
Ahead of the Wall Street open, US futures pointed to a lower start to trading, while closer to home European indices ended a five-session winning streak as nervousness prevailed. At last check, the pan-European STOXX 600 index was down 0.7% at 197.9; the FTSE 100 index was 0.82% weaker at 4,272.49.
US Treasury Secretary Timothy Geithner is due to announce the second phase of the President Obama administration’s rescue package for the banks, while US lawmakers are waiting to vote on the first phase, announced yesterday. Late Monday, administration officials told congressional staff that the government’s plan to thaw the credit markets and stabilize the financial system could eventually involve more than $2 trillion of financing to help deal with illiquid assets and boost consumer lending.
Back in Europe, a number of banking sector news items failed to calm investor nerves. Belgian bank Fortis was among these, as its chief executive told a local newspaper that if shareholders vote against a planned sale of the bank’s assets at tomorrow’s EGM, the group could face bankruptcy.
UBS also raised concerns as its posted a fourth-quarter loss of SFr8.1 million—admittedly a narrower loss than in the same quarter in 2007 but worse than analysts had expected and a considerable drop from the previous quarter’s moderate profit. The bank also announced it is slashing 2,200 jobs at its investment banking arm and restructuring its wealth management operations.
Barclays was also in play again Tuesday, falling into the red following a strong performance yesterday on the back of higher-than-expected full-year profits. However, Morningstar analysts said in a recent research note that although at first glance the figures were pleasing, a closer look raises some concerns.
Not only were Barclays' 2008 results driven by some large one-time gains, but also the substantial increase in the bank’s assets over the year makes Morningstar nervous that its enormous size makes risks harder to manage, analyst Erin Davis said.
And HBOS and Royal Bank of Scotland were back in the news Tuesday as former executives at the two banks faced a grilling at the hands of the UK Treasury committee.
Former HBOS chairman Dennis Stevenson, former RBS chairman Tom McKillop and former RBS chief executive Fred Goodwin all apologised for their banks’ troubles at the hearing held in London.
Goodwin said: “I think reflecting on everything that has happened, there is certainly cause for question on some of the judgements that we've made. And that's reflected in how things have turned out.”
Finally, in case any investors were considering risking a little optimism, MP Ed Balls reminded us that the UK is facing the “most serious global recession for over 100 years”.
