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A changing landscape
Oh my. What a week it has been. In the last 7 days the international financial landscape has changed beyond recognition, with every day it seems, bringing new headlines of woe. The week began with the collapse of the investment bank Lehman Brothers, closely followed by the Bank of America buying another investment bank- Merrill Lynch- for $50bn. These events sent shockwaves throughout global financial markets and soon AIG (one of the world’s largest insurers) were in trouble, receiving $85bn from the US Federal Reserve to prevent them from bankruptcy. Before we knew it Lloyds TSB were in talks with HBOS over a possible takeover and then a few hours later the takeover was confirmed. These events have been punctuated with fears of job losses, mortgage rate increases and rising inflation. It has definitely been an eventful week.
All of these events are the top financial stories of the week commencing 15th September 2008. However, they paint a very confusing picture, so let’s now review these events in more detail and discover how they will affect you.
Monday 15th September:
Lehman Brothers collapses – Early this morning the investment bank Lehman Brothers went bankrupt. What exactly is an investment bank you might be wondering, who are Lehman Brothers and what do they have to do with me? Well, an investment bank is not somewhere where you would have a current account; they deal entirely with governments, businesses and very rich individuals, making complex deals and investments. Lehman Brothers were one of the “top five” investment banks – the others being Merrill Lynch, Goldman Sachs and Morgan Stanley and Bear Stearns who were sold to JP Morgan earlier this year. Lehman had dealings with many of our UK banks, so Lehman’s downfall has created a ripple effect over to the UK. An example of this is that Lehman’s collapse has led to share prices around the world tumbling, the FTSE 100 (the UK’s index of share prices) fell by 4% and markets in the US and Japan also fell. Shares fell further as Merrill Lynch were taken over by the Bank of America, as they feared that they could be the next to fold without a large injection of cash. Another consequence of Lehman Brothers going under is the large job losses that will follow. Lehman’s employed approximately 5,000 people in London, and if you are one of those that have lost their job, then you may want to check out our special ‘when things go wrong’ section.
All of these events are the top financial stories of the week commencing 15th September 2008. However, they paint a very confusing picture, so let’s now review these events in more detail and discover how they will affect you.
Monday 15th September:
Lehman Brothers collapses – Early this morning the investment bank Lehman Brothers went bankrupt. What exactly is an investment bank you might be wondering, who are Lehman Brothers and what do they have to do with me? Well, an investment bank is not somewhere where you would have a current account; they deal entirely with governments, businesses and very rich individuals, making complex deals and investments. Lehman Brothers were one of the “top five” investment banks – the others being Merrill Lynch, Goldman Sachs and Morgan Stanley and Bear Stearns who were sold to JP Morgan earlier this year. Lehman had dealings with many of our UK banks, so Lehman’s downfall has created a ripple effect over to the UK. An example of this is that Lehman’s collapse has led to share prices around the world tumbling, the FTSE 100 (the UK’s index of share prices) fell by 4% and markets in the US and Japan also fell. Shares fell further as Merrill Lynch were taken over by the Bank of America, as they feared that they could be the next to fold without a large injection of cash. Another consequence of Lehman Brothers going under is the large job losses that will follow. Lehman’s employed approximately 5,000 people in London, and if you are one of those that have lost their job, then you may want to check out our special ‘when things go wrong’ section.
Inflation rises to 4.7% - The Consumer Price Index (CPI) has shown that inflation rose to 4.7% last month, rising from 4.4% in July, which is the highest level since 1992. This high level of inflation caused Mervyn King – the governor of the Bank of England- to write to the Chancellor, Alistair Darling, to explain why inflation is more than double the government’s 2% target. King partly blamed rising energy and food prices and a weak pound for increasing inflation, but forecasts that inflation may hit 5%, before dropping back down. These higher prices are being felt at the supermarkets where a loaf of bread is up by 46% and a pint of milk is up 20%.
Thursday 18th September
HBOS and Lloyds - In the UK the biggest mortgage lender is the Halifax, providing around a fifth of all mortgages. Since Lehman Brothers collapsed, HBOS (Halifax Bank of Scotland) shares began to drastically fall- on Monday and Tuesday the value of HBOS shares fell by 30%. It was announced on Wednesday that HBOS and Lloyds TSB were in some kind of takeover talks, and today Lloyds TSB’s £12.2bn takeover of HBOS was confirmed. It is not an understatement to say that things have moved extremely quickly! The finer details of the deal, for example who will run the Lloyds TSB-HBOS entity and what it will be called (my bet is on Lloyds HBOS), have yet to be confirmed. What is clear is that Lloyds TSB-HBOS now has almost one-third of the UK’s savings and mortgage market, making it a very powerful bank. How will all this affect you? Well, broadly speaking it shouldn’t affect you too much, and do not panic if you have savings in either of the banks. The Financial Services Association (FSA) under its compensation scheme guarantees up to £35,000 per registered institution, and as the average person has only £9,000 in their account you should be OK. If you are concerned check out the BBC as they have answered several of the most common questions that have been asked about the deal.
HBOS and Lloyds - In the UK the biggest mortgage lender is the Halifax, providing around a fifth of all mortgages. Since Lehman Brothers collapsed, HBOS (Halifax Bank of Scotland) shares began to drastically fall- on Monday and Tuesday the value of HBOS shares fell by 30%. It was announced on Wednesday that HBOS and Lloyds TSB were in some kind of takeover talks, and today Lloyds TSB’s £12.2bn takeover of HBOS was confirmed. It is not an understatement to say that things have moved extremely quickly! The finer details of the deal, for example who will run the Lloyds TSB-HBOS entity and what it will be called (my bet is on Lloyds HBOS), have yet to be confirmed. What is clear is that Lloyds TSB-HBOS now has almost one-third of the UK’s savings and mortgage market, making it a very powerful bank. How will all this affect you? Well, broadly speaking it shouldn’t affect you too much, and do not panic if you have savings in either of the banks. The Financial Services Association (FSA) under its compensation scheme guarantees up to £35,000 per registered institution, and as the average person has only £9,000 in their account you should be OK. If you are concerned check out the BBC as they have answered several of the most common questions that have been asked about the deal.
Thursday 19th September
Unemployment fears worsen - Throughout this week there have been various figures banded about as economists and the like try and get their heads around the impact of this week’s financial shake-up. Even before Lloyds TSB took over HBOS, it was estimated that there would be 100,000 job losses in the banking sector. Yet the merger between HBOS and Lloyds will undoubtedly result in some job losses as Lloyds TSB have estimated that they will be aiming to cut costs by £1bn, conservative estimates are between 21,000 -28,000 more unemployed. Yet even before all these shenanigans the number of people unemployed rose to 1.72 million in July, which was up by 81,000 from April. In the same way the number of people claiming job seekers allowance rose by 32,500 to reach 904,900 which is the biggest monthly increase since December 1992. This is not particularly good news, yet it is the perfect time to review your savings options. As I mentioned last week savings are an important aspect of how you manage your money so the options available are well worth investigating.
Mortgages becoming more expensive - The Bank of England’s chief economist Spencer Dale has predicted that house prices will continue to fall following stock market turmoil and the demise of Lehman Brothers and Global Insight (a forecasting firm) predict that house prices could fall by 30% by 2010. A large amount of you are reaching the end of your fixed-rate deals and the advice of Spencer Dale is to try and secure the interest rate with your lender as soon as possible, as fixed-rate deal rates are set to increase. Tough conditions in the housing market have also pushed mortgage lending down as the Council of Mortgage Lenders (CML) report that only £21bn was advanced in August which is down 12% from July and down 36% from August 2007. If you are coming to the end of your fixed-rate deal mortgage make sure that you are aware of all the varying deals and options available to you so you can make an informed decision. Moneysupermarket.com is a price comparison site that is particularly useful for comparing deals.
Petrol prices cut - It was announced today by several retailers that the price of petrol and diesel is set to be cut by 2-3p. ‘Hallelujah’ you might say! To those of you who have been astounded over the high costs of petrol and diesel (and those of you who have been perplexed as to why petrol prices haven’t fallen before) this will come as a welcome relief. This decrease will equate to a £1.50 saving for every time you fill up, so will provide you with a little extra money in your purse.
Share prices rise - As markets closed today share prices around the world were rising, as the US government proposed a plan to buy billions of dollars of US banks’ bad mortgage related loans (loans that have been defaulted on). As the top financial stories of the past week show, things can move extremely quickly in financial markets.
Prepared for moneybasics by Joanna Parsley, Advocacy Officer (Credit Action).
Unemployment fears worsen - Throughout this week there have been various figures banded about as economists and the like try and get their heads around the impact of this week’s financial shake-up. Even before Lloyds TSB took over HBOS, it was estimated that there would be 100,000 job losses in the banking sector. Yet the merger between HBOS and Lloyds will undoubtedly result in some job losses as Lloyds TSB have estimated that they will be aiming to cut costs by £1bn, conservative estimates are between 21,000 -28,000 more unemployed. Yet even before all these shenanigans the number of people unemployed rose to 1.72 million in July, which was up by 81,000 from April. In the same way the number of people claiming job seekers allowance rose by 32,500 to reach 904,900 which is the biggest monthly increase since December 1992. This is not particularly good news, yet it is the perfect time to review your savings options. As I mentioned last week savings are an important aspect of how you manage your money so the options available are well worth investigating.
Mortgages becoming more expensive - The Bank of England’s chief economist Spencer Dale has predicted that house prices will continue to fall following stock market turmoil and the demise of Lehman Brothers and Global Insight (a forecasting firm) predict that house prices could fall by 30% by 2010. A large amount of you are reaching the end of your fixed-rate deals and the advice of Spencer Dale is to try and secure the interest rate with your lender as soon as possible, as fixed-rate deal rates are set to increase. Tough conditions in the housing market have also pushed mortgage lending down as the Council of Mortgage Lenders (CML) report that only £21bn was advanced in August which is down 12% from July and down 36% from August 2007. If you are coming to the end of your fixed-rate deal mortgage make sure that you are aware of all the varying deals and options available to you so you can make an informed decision. Moneysupermarket.com is a price comparison site that is particularly useful for comparing deals.
Petrol prices cut - It was announced today by several retailers that the price of petrol and diesel is set to be cut by 2-3p. ‘Hallelujah’ you might say! To those of you who have been astounded over the high costs of petrol and diesel (and those of you who have been perplexed as to why petrol prices haven’t fallen before) this will come as a welcome relief. This decrease will equate to a £1.50 saving for every time you fill up, so will provide you with a little extra money in your purse.
Share prices rise - As markets closed today share prices around the world were rising, as the US government proposed a plan to buy billions of dollars of US banks’ bad mortgage related loans (loans that have been defaulted on). As the top financial stories of the past week show, things can move extremely quickly in financial markets.
Prepared for moneybasics by Joanna Parsley, Advocacy Officer (Credit Action).
| Top Money Stories October 13th – October 17th 2008 |
