Diamond Blames Industry, Regulators; BoE Expands Asset Purchase Plan

Arthi Gupta
05 Jul, 2012
New York City

The UK indexes traded sideways after the Bank of England expanded its asset purchase program but maintained record low interest rate. Home prices in the UK rose unexpectedly in June. Ireland raised

[R]3:30 PM London – The UK indexes traded sideways after the Bank of England expanded its asset purchase program but maintained record low interest rate. Home prices in the UK rose unexpectedly in June. Ireland raised €500 million from the sale of its 3-month treasury bills.[/R]

The UK indexes traded sideways after the Bank of England expanded its asset purchase plan by £50 billion to £375 billion but maintained its record low interest rate at 0.50%.

Separately, the European Central Bank reduced the main refinancing rate by 25 basis points to 0.75%, as estimated. It was the first rate cut since December.

The central bank also lowered its deposit rate by 25 basis points to zero and the marginal lending facility rate was also cut to 1.50% from 1.75%.

In London, the benchmark index FTSE 100 declined 18.85 or 0.3% to 5,665.53 and the pound edged lower to $1.5520.

UK Home Prices Rise

Home prices in the United Kingdom increased unexpectedly in June, data from Lloyds Banking Group''s Halifax division showed today.

Home prices rose 1% to £162,417 in June from a month earlier.

On an annual basis, hoe prices fell 0.5% during the three months through June, following a 0.1% decline in the three months to May.

Separately, new car registrations in the United Kingdom increased for the fourth consecutive month in June, data released by the Society of Motor Manufacturers and Traders showed.

Sales of new passenger cars increased 3.5% annually to 189,514 units in June.

Irish Factory Output Grows

Ireland''s manufacturing production rose in May, data released by the Central Statistics Office showed.

Production at Irish factories increased 4.9% annually in May following the 2% gain in April.

Irish Bond Auction

Ireland raised €500 million from the sale of its 3-month treasury bills at an average yield of 1.8%. This was the first debt auction since September 2010. The bid-to-cover ratio was 2.8.

The National Treasury Management Agency said it received bids worth €1.415 billion.

GKN Acquires Volvo Aero

GKN plc agreed to acquire Volvo Aero, the aero engine division of AB Volvo to create a world leader in both aero structures and aero engine components.

The enterprise value of the deal is valued at SEK6.9 billion or £633 million comprising SEK5.6 billion or £513 million of equity value together with an anticipated Volvo Aero pension settlement of £50 million and working capital refinancing of £70 million.

Barclays in Focus

Robert E. Diamond Jr., the former chief executive of Barclays testified before the British Parliament''s Treasury Select Committee in London on Wednesday and placed blame on the wider industry and also laid some of the blame on regulators and central bank.

Diamond said he was shocked, angry and “physically sick” after he learned that 14 traders rigged Libor rates putting the bank’s credibility at stake.

However, Diamond insisted that the bank is singled out because it was not the first to settle with the regulators. Last week, the bank agreed to pay £290 million to U.S. and UK regulators to settle allegations that the company''s employees tried to manipulate the inter-bank lending rate.

Diamond added, “I can’t sit here and say no one in the industry didn’t know about the problems with Libor.

There was an issue out there and it should have been dealt with more broadly.”

The British government has ordered an independent review into the inter-bank lending rate. The Labor party wants an independent judicial inquiry whereas the ruling coalition prefers to have a parliamentary investigation.

Gainers & Losers

Aviva plc rose 0.4% to 282.50 pence after the insurer intends selling or closing 16 of its underperforming businesses.

Barclays Bank plc, the financial services provider fell 2% to $10.33 after rating agencies’ lowered their outlook of the bank to ''negative'' from ''stable''.

easyJet plc declined 2.9% to 530 pence after the low cost carrier said its load factor rose 1.6 percentage points annually to 89.9% in June.