Deals to allay crisis in danger of failing
November 13, 2008
By Jeremy Gaunt and Alex Richardson
London and Singapore - Some deals designed to cure the global financial crisis were in danger of unravelling yesterday, as losses mounted at banks and economies deteriorated.
The International Monetary Fund (IMF) withheld backing for a $6 billion (R61 billion) bailout plan for Iceland, the Financial Times reported, putting loans to the nation at threat.
British newspapers said some of Barclays' biggest shareholders had threatened to vote against a planned £7 billion (R111 billion) capital raising unless the UK banking giant improved the terms of the deal.
This follows a row over the planned fire sale of UK lender HBOS to Lloyds TSB, with leading banking figures arguing that a more competitive deal should be sought.
Questions are beginning to be asked about just how much help governments can give.
"The US's financial resources are already stretched and a flood of new demands may overwhelm a government already staring down at a record budget deficit next year," said UBS economists.
Aides to US president-elect Barack Obama, meanwhile, were playing down reports of tension with President George W Bush over help for the stricken motor industry.
Financial markets were rocked again under the combined pressure of a global economic downturn and the worst financial crisis in 80 years.
There were more corporate profit warnings, with General Motors (GM) shares falling in New York on Tuesday to levels not seen since World War 2.
GM climbed 11 percent to $3.24 in early morning New York trading yesterday after house speaker Nancy Pelosi urged congress to pass an car industry bailout, embracing the premise that GM is too big to be allowed to fail.
European shares lost more than 4 percent on Tuesday, then rose 1.6 percent by noon yesterday, reflecting the sharp volatility plaguing investors.
"Whether it's economic indicators or company news, it's just too awful," said Takashi Ushio, the head of investment strategy at Marusan Securities.
The financial sector showed more pain, with Dutch group ING posting its first quarterly loss as impairments on stocks and bonds, counterparty losses and property write-downs ate into its income.
Write-downs of E1.5 billion (R19.5 billion) sent ING to a net third-quarter loss of E478 million, down from a profit of E2.3 billion a year earlier.
ING had projected the loss last month before agreeing to a E10 billion cash injection by the Dutch government.
This came against a background of continuing decline in world economies.
China's retail sales data yesterday pointed to slowing consumption.
The head of the Organisation for Economic Co-operation and Development said there was room for further interest rate cuts in the stagnating euro zone.
The World Bank said more countries were seeking its help.
Bank president Robert Zoellick said the bank expected its lending to increase to $35 billion this year from $13.5 billion last year, adding that Mexico, Indonesia and Colombia were among countries tapping its contingency financing amid worries about access to credit.
Zoellick said global trade might drop next year for the first time in a quarter of a century as the worldwide credit crisis cuts into trade financing.
Investors, meanwhile, were looking to a summit of world leaders in Washington on Saturday for solutions.
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