Co-op Ungovernable

Euan Sutherland tendered his resignation on Monday as CEO of the Co-operative Group.

Sutherland joined the Co-op last May, and details of his £3.66M compensation package were published in the media this weekend. Chairman Ursula Lidbetter has yet to publicly accept his resignation.

Sutherland is of the view (as stated in his resignation letter) that the Co-op is "ungovernable", and that the leak of his remuneration package details was the work of those who wished to stop him enacting reforms within the group.

GDP Back To 2008 Levels

The British Chambers of Commerce (BCC) has said that the economy, which is currently 1.4% below its pre-recession peak in 2008, would exceed these levels in the second quarter of this year.

Despite saying last year that the level would not be reached until 2016, the BCC has upgraded its forecasts for growth to 2.8% this year and 2.5% next year, from previous projections of 2.7pc and 2.4pc.

John Longworth, director-general of the BCC, is quoted by the Telegraph:

"Our economic recovery is gaining momentum. Businesses across the UK are expanding and creating jobs, and our increasingly sunny predictions for growth are a testament to their drive and ambition."

BDO, in its own survey, also backed the BCC prognosis. Peter Hemington, a partner at BDO, said there was "markedly strong optimism and hiring intentions across all sectors of the economy".

 

However, according to the BCC, the UK is lagging behind Germany and the US where GDP is already well above pre-recession levels.

EU Corruption Breathtaking

The EU Anti-Corruption Report, published today, paints a grim picture of corruption being endemic across the EU.

The report's author, EU Home Affairs Commissioner Cecilia Malmstroem, said that the extent of corruption in Europe is "breathtaking"; it costs the EU economy at least 120BN euros per annum (the EU's annual budget).

Corruption erodes trust in democracy and drains resources from the legal economy.

 

Unsurprisingly the bureaucrats and politicians within the EU have managed to delay the release of this report, which should have been published months ago. Additionally, the report was also meant to cover EU institutions. However, the vested interests managed to block that part of the investigation.

 

As Cecilia Malmstroem told the BBC:

"The political commitment to really root out corruption seems to be missing." 

Quite!

The reason being is because the bureaucrats and the politicians in the EU treat the system as a gravy train which they have no intention of alighting from.

Putin In Another World - Markets Panic

As the crisis in Ukraine escalates, exchanges in Europe and Russia are falling and commodity prices (gold and oil in particular) are rising as people seek "safe havens" for their money.

Russian assets in particular are falling, and the Russian central bank increased interest rates (the one-week repurchasing agreement was hiked from 5.5% to 7%) in order to prop up the falling rouble.

Reuters reports that the rouble fell 2% to 36.41 against the dollar and 1.2% to 50.10 against the euro, trading at all-time lows.

The rouble-denominated MICEX index of Russian shares tumbled 9.1% to 1,314.8 points and the dollar-denominated RTS .IRTS collapsed 10.3% to 1,137.1 points.

In effect the markets are reacting out of fear and panic, as and when some clarity emerges the markets will settle. However, there will be significant periods of instability in the coming weeks as there is little evidence that clarity will emerge anytime soon; not least because (as per the New York Times) Chancellor Angela Merkel of Germany told Mr. Obama by telephone on Sunday that after speaking with Mr. Putin she was not sure that he was in touch with reality, people briefed on the call said. “In another world” she said.

Suffice to say, Putin and his cronies will have made a fortune on their gold and oil futures!

Mt Gox Collapses

As expected, the Bitcoin exchange Mt Gox has gone under and has filed for bankruptcy protection. It has debts of around $63M.

As per Reuters:

"A document circulating on the internet purporting to be a crisis plan for Mt. Gox, said more than 744,000 bitcoins were "missing due to malleability-related theft" and noted Mt. Gox had $174 million in liabilities against $32.75 million in assets. It was not possible to verify the document. If accurate, though, it would mean about 6 percent of the 12.4 million bitcoins minted would be considered missing."

Question For RBS

Why on earth have you more than doubled your lending to Chinese banks?

Ukraine Raids Foreign Currency Deposits

Amid the allegations of an armed invasion by Russia in Crimea, Ukraine's Central Bank has announced that it will return foreign currency deposits in Ukrainian Hryvnias unless the withdrawal requested is UAH 15,000 (approx £800) or less per day; ie Ukraine has raided the foreign currency deposits.

Needless to say the Hryvnia, until that announcement, was collapsing.

Stepan Kubiv, the newly appointed Governor of the National Bank of Ukraine, made the following statement yesterday:

"I have just been appointed as Governor of the National Bank of Ukraine.

The National Bank of Ukraine has professional staff.

The vitally important systems, including the SEP, NSMEP, and operations in the open market, are operating as usual.

We are in control of the situation in the banking sector and maintain two-way communication with all the banks, regardless of their size.

We have analyzed the composition of the gold and foreign exchange reserves of the National Bank of Ukraine, which comprise highly liquid assets.

I feel confident that the situation is under control and manageable.

In my view, the most important tasks facing the banking system are protection of depositors' interests, the resumption of talks with all foreign creditors, primarily, with the IMF, once the new Ukrainian government is formed; development and approval of an ambitious and clear plan designed to reform the economy and the financial sector.

With this in mind, the National Bank of Ukraine shall take the following urgent steps.

The central bank stands ready to provide liquidity, including cash, to banks in the amount required, while ensuring that loans come with tougher conditions on transparency and control over their utilization.

The National Bank of Ukraine is set to take a tough line on those banks that violate the required reserve ratio and arrant speculators in the foreign exchange market. I feel confident that the measures taken by the National Bank of Ukraine will calm the markets and reduce devaluation expectations.

In my view, the resumption of talks with foreign creditors and restoration of investors' confidence in our country are crucial.

With financial assistance provided by foreign creditors, Ukraine will build up a substantial financial buffer that will help stabilize the situation in the financial sector and the entire economy.

The National Bank of Ukraine is ready to actively participate in the development of the reform plan and play a key role in its implementation. This plan based on the principle of transparency should become the key and top priority task of the Parliament, the Government and the National Bank of Ukraine. The above-mentioned measures are bound to translate into key drivers for economic growth.

I feel confident that this plan will receive support from the wise Ukrainian people."

Good luck to him!

£46BN Down The RBS Toilet

Royal Bank of Scotland (the bank destroyed by Fred Goodwin and his cronies) has, since it was bailed out in 2008, accumulated losses of £46BN. That sum is the same as the amount pumped into it in return for an 81% taxpayer stake in the bank.

RBS made a loss last year of £8.2BN, taking its cumulative losses to £46BN.

Losses at the bank include a £3.8BN charge for customer mis-selling compensation, and a £4.8BN impairment charge against the continued run down of its bad loans.

Ironically, despite continuing to lose money, the bank has set aside £576M to pay staff bonuses for 2013.

Growth and Economy Stabilising

The Office for National Statistics (ONS) has stated that the economy grew 0.7% in Q4 2013. However, overall growth for 2013 fell from 1.9% to 1.8%.

• Business investment  grew 2.4% in Q4
• Exports rose 0.4% in Q4
• Consumer grew 0.4% in Q4

These figures indicate that the economy is stabilising, and that growth may be becoming sustainable (until the next economic shock).

The Risks of Bitcoin

Bitcoin, the virtual currency used by traders, speculators and those wishing to duck under the watchful gaze of the police and financial authorities, has suffered a few setbacks recently.

Aside from Bitcoins falling in value, not great news for those who speculated that it was an easy way to make money, a major Bitcoin exchange platform (Mtgox.com) has gone offline this morning.

Seemingly the exchange has been hit by technical issues, and recently (7 February) halted all customer withdrawals of the digital currency after it spotted what it called "unusual activity". MtGox said that it had found a loophole that thieves could use to fool the transaction process into sending double the correct number of Bitcoins.

To add to MtGox's woes, six other major Bitcoin exchanges (including Coinbase and BTC China) issued a joint statement distancing themselves from MtGox. Quoted by the BBC:

"This tragic violation of the trust of users of MtGox was the result of one company's actions and does not reflect the resilience or value of Bitcoin and the digital currency industry.

As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today."

The suspension of the site has exacerbated the decline in value of Bitcoin, as a currency (virtual or tangible) is of no use to man nor beast if it cannot be exchanged for goods, services or other currencies.

MtGox claims that it will resume activities soon. However, wired.com claims that MtGox is "insolvent" and has lost 744,408 Bitcoins (worth about $350M).

As with all tangible currencies, if people lose faith in the currency or the institutions that manage/control the currency then that currency will lose value and people will not wish to hold it or use it.

Bitcoin is unregulated and uncontrolled, ie it is like the Wild West, that is part of its appeal. However, that lack of control and regulation is also its Achille's heel. Those who hold or use Bitcoins do so at their own peril, no central bank will ride to the rescue if people's Bitcoin savings are wiped out.

The Ukraine Powder Keg

Ukraine has issued a warrant for the arrest of ousted President Viktor Yanukovych for mass murder.

Additionally the new interim Finance Minister, Yuriy Kolobov, has said that Ukraine needs around $35BN in urgent foreign aid and asked for an international donors' conference to be held. Ukraine has debts of around $73BN of which $6Bn need to be paid this year.

Russia had recently agreed to provide $15BN. However, Russia is now spitting feathers at the turn of events in Ukraine and has recalled its ambassador. As such it is highly likely that it will withdraw that offer. Indeed, there is a very real danger that it will send troops into the Eastern part of Ukraine to "protect" the ethnic Russians who live there.

Meanwhile the BBC report that the EU is sending Catherine Ashton to discuss EU support "for a lasting solution to the political crisis and measures to stabilise the economic situation". Regrettably she has been a disaster in her role, and is not up to the job of handling this extremely volatile situation.

Rise In Interest Rates In 2015?

Martin Weale, a member of the Bank of England's rate-setting Monetary Policy Committee, has said that UK interest rates are likely to rise in the spring of 2015.

I would take that statement with a pinch of salt, until it is clear that the recovery is sustainable the Bank will not risk raising rates. I would also note that 2015 is an election year, a rate rise in the run up to the election would be politically unacceptable (even if the Bank is "independent").

Unemployment falls by 0.4%

The Office for National Statistics (ONS) has published the labour market statistics for October to December 2013:

• The percentage of people aged from 16 to 64 who were in work (the employment rate) was 72.1%. The employment rate is up 0.3 percentage points from July to September 2013 and up 0.6 from a year earlier. There were 30.15 million people in employment aged 16 and over, up 193,000 from July to September 2013 and up 396,000 from a year earlier.
• The percentage of the economically active population aged 16 and over who were unemployed (the unemployment rate) was 7.2%. The unemployment rate is down 0.4 percentage points from July to September 2013 and down 0.6 from a year earlier. There were 2.34 million unemployed people aged 16 and over, down 125,000 from July to September 2013 and down 161,000 from a year earlier.
• The percentage of people aged from 16 to 64 who were economically inactive (the economic inactivity rate) was 22.1%, little changed from July to September 2013 and from a year earlier. There were 8.93 million economically inactive people aged from 16 to 64, little changed from July to September 2013 and from a year earlier.
• Total pay rose by 1.1% compared with October to December 2012. Regular pay rose by 1.0% over the same period.

The unemployment rate is down, but the rate of decline in unemployment is also slowing (ie for the moment it appears to be bottoming out at around 7% ). This chimes with Mark Carney's (Governor of the Bank of England) recent statement noting that the recovery is not secure.

Lloyds Returns To Profit

Lloyds bank (which is 33% owned by the taxpayer) returned to profit in 2013, it made a pre-tax profit of £415M in 2013 compared with a £606M loss in 2012.

Antonio Horta-Osorio (its CEO) is entitled  to a deferred shares bonus worth £1.7M, and the overall pool of bonuses for staff has increased to £395M from £365M the previous year.


Lloyds expects to apply to the regulator in the second half of this year to pay a dividend in 2015, its first since 2008.

The return to profit and the resumption of dividend payments means it likely that more shares will be returned to the private sector in the near term, all the more so because George Osborne has said he wants to sell more shares before the next election in 2015.

Whistleblower Alleges RBS Deliberately Destroyed Viable Businesses

For the first time a whistleblower has revealed how the Royal Bank of Scotland allegedly deliberately destroyed perfectly viable small businesses - in an effort to save the bank during the credit crisis.