Tag Archives: Mervyn King

Business, Finance, Occupation & Industry

How the Coming Economic Recovery Will Boost Lloyds, Royal Bank of Scotland and Barclays

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By Tony Reading, The Motley Fool

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LONDON — Shares in the U.K.-focused high-street banks, Lloyds Banking , Royal Bank of Scotland   and Barclays  , were hit this week following the EU bail-out of Cyprus and the accompanying raid on savers’ deposits.

It’s a salutary reminder how vulnerable U.K. banks are to mishaps in the eurozone. But while markets shudder, it’s worth thinking about the long-term trajectory for bank shares.

Governor spies recovery
The Governor of the Bank of England, Mervyn King, said last week that he thought an economic recovery would ‘come into sight’ during 2013. That’s no reason to open a bottle of champagne, but it’s a reminder that the economy is heading upwards, not downwards.

The Governor pointed out that GDP statistics were distorted by problems in North Sea oil construction and production. If it hadn’t been for those, the U.K.’s economy would have grown by 1.5% last year.

Banks are highly sensitive to the economies in which they operate, and share prices generally anticipate future developments. So the banks’ shares should start to reflect expectations of a strengthening economy.

Bad debts
Economic growth translates into a healthier corporate sector, which is more credit-worthy and borrows more.

A healthier economy reduces the incidence of bad debts, alleviating concerns that banks might need to raise more capital. Only recently, shareholder-consultants PIRC calculated that if the old-style U.K. GAAP accounting rules still applied, RBS would need to make an additional 9.4 billion pounds of provisions for bad debts. The hit at Barclays and Lloyds would be 7.3 billion pounds and 2.5 billion pounds respectively.

Investment
Finally, economic growth should feed through into the personal sector.

It looks as if RBS shares the Governor’s optimistic view. It’s going to invest 700 million pounds over the next three years to revamp its U.K. bank branches. Meanwhile, Barclays has identified U.K. mortgages, wealth management and Barclaycard as business areas to invest in. You never know, competition might hot up between the lenders.

With Lloyds and RBS on the path to privatization and Barclays reinvigorated with a new management and strategy, the trio’s shares should react quickly to signs of economic recovery. But the impact of Cyprus‘s bail-out shows they remain vulnerable to the eurozone crisis.

If you already own banks but are looking for a growth story with a lower risk profile, I suggest you look at this company. It hasn’t made a capital call on its shareholders for more than 70 years, and has increased or held its dividend every year since at least 1988.

Its earnings per share have risen by 44% since 2009, and there could be considerable value that isn’t reflected in the share price. That’s why it’s “The Motley Fool‘s Top Growth Stock for 2013.”

You can learn more by downloading a free report from the Motley Fool — just click here.

The article How the Coming Economic Recovery Will Boost Lloyds, Royal Bank of Scotland and Barclays originally appeared on Fool.com.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Dow to Open Higher Ahead of Fed Statement

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By Roland Head, The Motley Fool

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LONDON — Stock index futures at 7 a.m. EDT indicate that the Dow Jones Industrial Average may open 0.24% higher this morning, while the S&P 500 may open up by 0.31%.

European markets rose this morning as investors shelved the continued uncertainty over the bailout of Cyprus and bought back into stocks that have fallen in price over the last few days, betting that eurozone finance officials and Cyprus‘ Russian creditors will eventually find a solution that will prevent the tiny nation’s banking system from collapsing.

In the U.K., the FTSE 100 was slightly higher ahead of the budget announcement, scheduled for 8:30 a.m. EDT, when Chancellor George Osborne is expected to announce further cuts to tax and spending in an attempt to kick-start growth. The publication of the minutes of the latest Bank of England Monetary Policy Committee meeting revealed that once again, the committee voted 6-3 against expanding the current quantitative-easing program, with outgoing governor Mervyn King one of those in favor of printing more money.

In the U.S., the highlight of today’s macroeconomic data will be the Federal Open Market Committee announcement at 2 p.m. EDT, after the conclusion of the committee’s monthly two-day meeting. This will be followed at 2:30 p.m. EDT by a press conference with Federal Reserve Chairman Ben Bernanke, which will be closely watched for any clues that the Fed’s current bond-buying program may be scaled back. Other data due today includes this week’s EIA petroleum report and the Mortgage Bankers Association weekly mortgage-market index.

In corporate news, General Mills is expected to report third-quarter earnings of $0.57 per share on revenue of $4.36 billion, while FedEx is expected to report third-quarter earnings of $1.39 on sales of $10.85 billion after earning $1.55 per share during the same quarter last year. Both companies are expected to report before the opening bell this morning, while software firm Oracle will report its third-quarter earnings after markets close today. Analysts are expecting Oracle to have earned $0.66 per share on sales of $9.38 billion, up slightly from $0.62 and $9.04 billion, respectively, for the same period last year.

Adobe Systems‘ stock may be actively traded when markets open after the software firm beat expectations with its first-quarter figures last night, revealing adjusted earnings of $0.35 per share on revenue of $1.01 billion versus analyst forecasts for earnings of $0.31 on sales of $985 million.

Finally, let’s not forget that the Dow’s daily movements can add up to serious long-term gains. Indeed, Warren Buffett recently wrote, “The Dow advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions.” If you, like Buffett, are convinced about the long-term power of the Dow, you should read “5 Stocks To Retire On.” Your long-term wealth could be transformed, even in this uncertain economy. Simply click here now to download this free, no-obligation report.

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Source: FULL ARTICLE at DailyFinance

News, Politics, Government

Bank of England: action needed over RBS losses

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The Bank of England‘s governor warned Wednesday that Britain’s government should take decisive action over losses at the Royal Bank of Scotland sooner rather than later to prevent it from being a drag on the economy.

Mervyn King told a parliamentary committee on banking that the government needed to finish within a year a radical restructure of RBS, which is more than 80 percent owned by the British taxpayer after getting a 45 billion-pound ($71 billion) bailout in 2008.

He said it was “not beyond the wit of man” to split RBS into “good” and “bad” banks. That would allow the government to sell off the healthy part, which would also be free to lend more to customers, helping the economy.

But to do that, the government will have to accept it will likely not recover all the money it spent on rescuing RBS.

“We should face up to it — it’s worth less than we thought and we should accept that and get back to finding a way to create a new RBS that could be a major lender to the U.K. economy,” King said.

Treasury chief George Osborne recently told the committee he believes there are “very considerable obstacles” to splitting RBS, and that he favored shrinking the bank’s balance sheet while it focuses on Britain’s economy.

“Time has passed and aside from reducing the balance sheet, nothing has been achieved — we haven’t managed to get it into the private sector,” King said. “It would be much better to accept that it should have been a temporary period only, and the longer this goes on, the more difficult it becomes.”

King’s comments come only a week after RBS‘ chief executive, Stephen Hester, stressed the bank has made progress in the restructuring process — even as he acknowledged it would take time to rebuild public trust dented by what he described as a “chastening year.”

The bank reported a full-year loss of 5.97 billion pounds ($9 billion), worse than the shortfall of 2 billion pounds in 2011.

Hester stressed that the restructuring was entering the final phase, and that RBS would return to private ownership in the next few years. RBS has said it is making progress in repaying emergency liquidity loans from the government …read more
Source: FULL ARTICLE at Fox World News

Business, Finance, Occupation & Industry

These Five Income Stocks Will Gain From Sterling Weakness

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By Tony Reading, The Motley Fool

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LONDON — So far this year, the pound has fallen more than 7% against the dollar, and it’s now trading at its lowest level since July 2010.

It looks likely to get worse before it gets better, with fears of a triple-dip recession, the loss of the AAA rating, fudged coalition politics, Mervyn King voting for more QE, and an even more inflation-tolerant Bank of England Governor waiting in the wings.

Dividends
With 70% of FTSE 100 company earnings coming from overseas, a weak pound can be a boost for the index. It should also be good news for dividends.

Brokers Shore Capital estimate that dividend growth in the FTSE 350 could double if sterling continues to fall against the dollar. Some of the big beneficiaries are the miners, which I looked at last week. But they start from a low base yield.

So I’ve trawled the FTSE‘s top 20 highest-yield stocks to screen for those with substantial overseas earnings, especially U.S.-based. With the euro looking at least as vulnerable as the pound, I’ve screened out companies with high European earnings.

These are the five high-income stocks, all with prospective yields of more than 4.5%, which should benefit most from sterling’s woes:

1. BAE Systems
The U.S. is by far the most important market for BAE Systems , accounting for nearly half its revenues. The U.K. contributes a fifth, and my guess is that much of BAE‘s other revenues are dollar denominated.

The imminent impact of sequestration is a threat to BAE‘s U.S. sales, but, ultimately, I don’t believe the U.S. will allow its national defense to be compromised. So I see BAE as a good long-term buy, with a prospective yield of 5.8%.

2. GlaxoSmithKline
GlaxoSmithKline‘s response to the patent cliff — moving into over-the-counter medicines and emerging markets — shows up in its revenue split. Just 6% of sales are in the U.K., with the U.S. contributing a third of the total.

Pharmaceutical shares demonstrated their defensive mettle in the 2007/2008 crash, losing just 15% as the FTSE halved. With a broad spread of revenues, a growing emerging markets franchise, and a yield of 5.3%, GSK is all things to all men. Why wouldn’t you own it?

3. AstraZeneca
AstraZeneca  gets nearly 40% of its revenues from the Americas, with a quarter each from the U.K. and continental Europe. At 6%, it has one of the FTSE‘s highest yields, with fears over the company’s patent cliff weighing on the shares. Already, it’s seeing declining revenues.

New CEO Pascal Soriot should update investors with his strategy this month. That seems aimed at repositioning Astra back to scientific innovation, with maybe some biotech acquisitions or joint ventures. It would be a markedly different strategy from rival GSK.

4. National Grid 
Yielding 5.6%, National Grid  is the monopoly owner of the country’s high-voltage network and high-pressure gas system. But nearly 60% of its revenues come from the U.S., where it’s the largest power producer in New York state and has large gas and electricity distribution …read more
Source: FULL ARTICLE at DailyFinance

News, Politics, Government

BOE predicts inflation will worsen

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The Bank of England says its forecast for inflation has risen since its November report and predicted the rate may hit 3 percent by summer — but it will tolerate the increase in an attempt to boost the economy.

Bank of England Gov. Mervyn King says inflation would be above the 2 percent target for another two years, but that there is cause for optimism and that recovery is in sight. He told reporters Wednesday the bank would look past inflation figures to support growth and employment.

King says the bulk of the economy grew at a steady rate of 1.2 percent in 2012.

Vicky Redwood, the chief UK economist at Capital Economics says the bank is adopting the flexible approach to inflation that incoming governor Mark Carney recently advocated.

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Source: FULL ARTICLE at Fox World News

News, Politics, Government

Future Bank of England boss open to policy review

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Mark Carney, the Canadian central banker who is set to become the Bank of England‘s governor this summer, says he is open to a review of Britain’s monetary policy framework.

Answering a list of written questions from the influential Treasury Select Committee, Carney says “the bar for change to any flexible inflation-targeting framework should be very high.” However, he says the framework should be “reviewed and debated periodically.”

Since being granted independence in 1997, the Bank of England has been tasked to set interest rates to achieve a certain level of inflation. Some critics argue that its remit should change to have a greater focus on economic growth.

Carney is addressing lawmakers Thursday ahead of his arrival at the bank in July. He will replace long-time governor Mervyn King.

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Source: FULL ARTICLE at Fox World News