Yesterday the Markets experienced no give up in Turbulence, with Banking Shares bearing the brunt of the effects.
The fly on the wall at 10 Downing Street last night will have all the broadsheets & tabloids queuing up, desperate to sign them up for the real workings out behind the provisions outlined in the earlier news conference with Messrs Brown & Darling.
The buzz word from the news conference was 'Stability', with the government wishing to assure the British Banking System & the Public alike that the proposed package of up to £50bn is there to instil confidence, unjam the current stall in liquidity across the Banks & provide a sounder footing for the Short, Medium & Long Term. In turn it is hoped the measures will stop the panic & aid in increasing the value of the banking share within the Markets, following the exodus seen recently.
The key points of the plan are:
• To aid the money flow in the short term between banks with an injection of £200bn from the Bank of England as opposed to anticipated £100bn
• Banks must increase their capital to at least £25bn & if necessary can borrow from the government if need be
• £25bn is available in exchange for preference shares
• £250bn in loan guarantees, at commercial, earning the tax payer a return
• If banks wish to participate in the scheme there will be strings attached, mainly to the rates of pay for executives & shareholder dividends payments.
• Legal action against the Icelandic Banks in regards to the return of UK deposits
Lets hope the measures go at least someway to calming the current storm. There are few data releases today, however tomorrow we have the UK Interest Rate Announcement, it is now widely expected that there will be a cut, however the jury seems to be out as to just how much the MPC are willing to cut by, as would 25 bp really have the necessary impact?
Given all the focus on the Stock & Money Markets we can not forget the FX world & it's own turbulence as a result of the former with Sterling weakening this morning since the delivery of the Governments Rescue Package, with GBPUSD dropping around 1 cent & a similar story applies to Sterling Euro.
It appears that there is no real good news out there today, just measures to make the bad news more palatable.
Hazel Wilkinson| Treasury Solutions | nabCapital