Ireland Bailout of 3 Banks; Weak UK Home Prices

123jump.com Staff
22 Dec, 2008
New York City

Miners and insurers fell in London trading. UK home prices are expected to decline 10% after falling 9% in the current year. The European Commission approves Electricite de France acquisition of British Energy. Pound inches near parity with the euro. Ireland pumps 5.5 billion euros in banks.

[R]1:00PM New York, 6:00PM London – Miners, banks and insurance companies fell in London trading. UK home prices are expected to decline 10% after falling 9% in the current year. The European Commission approves Electricite de France acquisition of British Energy.[/R]

London stock indices fell 0.9% on worries that global economic conditions are worsening after the Irish government injected 5.5 billion euros in three banks.

A report from a private property researcher said home prices are likely to fall by additional 10% next year also unnerved investors.

In London trading FTSE 100 index dropped 0.9% or 37.77 to 4,249.16.

Of the FTSE 100 index stocks, 23 rose, 78 declined, and one was unchanged. Friends & Provident Plc led gainers in the index shares with a rise of 5.6% followed by Old Mutual increasing 5.2%.

House Prices Likely to Fall 10%

Property researcher Hometrack Ltd. reported today that U.K. house prices will decline 10% next year as shortage of mortgage finance limit home buyers abilities to complete transactions.

Home lending is estimated to ease to £15 billion in 2009 from £39 billion in 2008 after surging to as high as £107 billion in 2007. Richard Donnell in a research report noted that home prices are expected to decline 10% in 2009 and additional 3% in 2010 after dropping 9% in 2008.

Sales volumes are projected to drop 12% next year after dropping 45% this year and repossessions are expected to soar to 70,000 in 2009 from 45,000 in 2008. Home starts in the current year have dropped 48% and are likely to fall further in 2009.

Hometrack''s director of research Richard Donnell said, “The onset of recession and rising unemployment is set to act as a major constraint” and also did not want to forecast specific details for the market next year.

Other tracking and research companies including Halifax, Council of Mortgage Lenders and Nationwide have abandoned publishing 2009 forecast.

Ireland Forded to Pump 5.5 billion euros into Banks

Ireland reported yesterday that it will provide 5.5 billion euros in the country''s three biggest banks, Bank of Ireland, Anglo Irish Bank and Allied Irish Banks.

There will be an initial investment of 1.5 billion euros in Anglo Irish Banks in exchange for 75% equity after the mid-January extra-ordinary general meeting.

Government also said it will subscribe for 2 billion euros of 8% core tier 1 preference shares in Bank of Ireland.

Anglo Irish will issue perpetual preference share that pays 10% dividend and confer 75% of voting rights. Bank of Ireland and Allied Irish will issue preference shares that pay 8% dividend and 25% voting rights that govern change of control and for issuance of additional debt or stocks.

Anglo Irish Bank dropped 15% after the government took control of the troubled bank. Last week, Chairman Fitzpatrick and chief executive David Drumm resigned after the bank disclosed that it had lent 87 million euros to the chairman.

Pound Nears Euro Parity

The pound today fell 2% to £0.9524 against the euro from a record £0.9556 last week after outgoing deputy Governor of Bank of England John Gieve said there was need for new instruments besides interest rates to fix the economy.

Gainers & Losers

Friends Provident Plc led gainers in the FTSE 100 index shares with a rise of 5.6% followed by increases in Old Mutual Plc of 5.2%, in Schroders Plc of 4.6%, in Legal & General Group of 4.5%, and Cairn Energy of 4.3%.

Home Realty Group led decliners in the FTSE 100 index shares with a fall of 13% followed by losses in London Stock Exchange of 8.6%, in Lloyds TSB Group of 8.6%, in Xstrata of 7.5%, and Invensys of 7.4%.

EU Approves EDF acquisition of British Energy

The Financial Times reported today that the European Commission has approved EDF''s proposed acquisition of British Energy on condition it agrees to divest a power generation plant at Sutton Bridge and a plant owned by British Energy at Eggborough.

The commission has mandated that the merged entity to sell a minimum amount of electricity into the British wholesale market and sell a site for building a new nuclear power station either at Dungeness or Heysham.

It will also have to end one of its three grid connection agreements with the National Grid at Hinkley Point in the UK.

Europe Markets Review

In London FTSE 100 Index closed lower 37.77 or 0.88% to 4,249.16, in Paris CAC 40 Index decreased 74.54 or 2.31% to close at 3,151.36 and in Frankfurt DAX index lower 57.68 or 1.23% to close at 4,639.02. In Zurich trading SMI decreased 40.34 or 0.74% to close at 5,419.52.