Bad bank to house toxic assets of Portugals Banco Espírito SantoHSBC complain of unprecedented regulationBoEs Spencer Dale quits to become BPs chief economistUK housebuilding grows at fastest pace in 11 yrs 2.49pm BST Plenty of backslapping at the prime ministers palace in Athens today, as Jean-Claude Juncker turns up to offer support for Greeces government.We have covered a huge distance but we have not yet reached the end...Certainly, many developments, events show us how fragile the situation is not only in Greece but elsewhere. But there are also positive signs, also in Portugal.We are not yet fully out of the tunnel, and I wouldnt want to give the impression that weve left all the ills behind but there has been a lot of progress...I fully trust Portuguese authorities that they will solve the problem they are facing in the financial sector. 2.29pm BST Over in Washington around 50 leaders are gathering for the first-ever US-Africa summit.Following his visit to Africa last summer, Mr. Obama wanted to follow up with a gathering that would help the U.S. reinforce its economic and diplomatic ties with the continent. The European Union has held a similar events for several years, while China has become a much bigger trading partner for Africa than the U.S. We chose to do this summit to send a very clear signal that we are elevating our engagement with Africa, Ben Rhodes, a deputy national security adviser, told journalists last week. We see enormous opportunities in Africa as it continues to advance its own economic development. 2.03pm BST After Russia annexed Crimea earlier this year, government officials urged patriotic citizens to take their holidays at the Black Sea resort to help boost the local economy.That plan hit a snag today, after budget carrier Dobrolet announced it was suspending all flights as a result of EU sanctions.Dobrolet is a subsidiary of a Russian state-owned airline. Since the illegal annexation of Crimea Dobrolet has so far exclusively operated flights between Moscow and Simferopol. It therefore facilitates the integration of the illegally annexed Autonomous Republic of Crimea into the Russian Federation and undermines Ukrainian sovereignty and territorial integrity. 1.39pm BST The bailout of Banco Espírito Santo was not a surprise to anyone who had been following Portugals troubled banking sector.Portugal left its bailout programme in May, but continues to face huge economic challenges.In May, Portugal was the second country (after Ireland) to exit the joint EU/IMF bailout program. The government decided to end its three-year bailout program without requesting any additional line of credit from the EU/IMF, as rapidly falling sovereign interest rates allow the country to support its financing needs through issuance on bond markets. Nonetheless, these favourable financing conditions cannot be taken for granted, particularly as fragilities remain evident, including weak domestic demand, high unemployment, persistent deflationary risks, a fragile banking system and ongoing fiscal consolidation. Moreover, the debt-to-GDP ratio peaked at a very high level of 129% in 2013 and is expected to stabilize at this level in 2014. Similarly, some concerns remain regarding the needed further fiscal consolidation as Portugals Constitutional Court rejected some austerity measures in June. EH expects the fiscal deficit to continue to drop in the coming quarters, and to reach -3% of GDP by 2015. However, developments in public finance will be strongly dependent on the ability of Portugal (and the eurozone) to maintain investor confidence and keep interest rates low. 1.07pm BST The departure of Spencer Dale from the Bank of England is a blow to Mark Carneys ambition to break down silos at the institution, according to HSBCs chief economist Simon Wells.Here is his verdict:Spencer Dale, the BoEs executive director for financial stability and its former chief economist, is leaving the UKs central bank after a long career there. He leaves just over two months after starting a new role in the BoEs financial stability area. This was intended to improve connectivity around the BoE and, we also suspect, to bring more structure to macroprudential policy. Therefore his departure is potentially a setback to Mark Carneys strategic plan for the BoE and creates a vacancy on the BoEs [Financial Policy Committee] at an important time. Given his vast knowledge of the UK economy, we think his departure is a loss to the BoE. 12.28pm BST Readers interested in how Britain dealt with a financial panic in 1914 should take a look at the Bank of Englands unpublished history of the war years and immediate aftermath.On Tuesday, the 4th*, Great Britain entered the war and on this day also a Conference, lasting three days, began between the Chancellor of the Exchequer (Lloyd George ) , Members of the Cabinet and Representative Bankers and Traders. This Conference was chiefly occupied with the proposed general moratorium and the provisions for suppling the Bankers with Currency Notes by Friday, the 7th, when they were to re-open o the Public and when it was feared considerable demands might be made upon them.Even if the Bank of England had been exposed to a foreign drain of gold, or to the risk of it it would have been a shameful abandonment of the Banks traditions to have refused to pay out gold so long as any substantial quantity of it was still available. A suspension of specie payments, the English have been taught to believe, is a last, and not a first, resort. On an unshaken belief in the tenacity of this tradition the international position of the City of London largely depends; and weakness on this point in the early days of the crisis, however great the danger, might have preluded a vast loss of future prestige. 11.57am BST Brewin Dolphin, another City institution, is also remembering the enormous cost of the war in human lives.Brewin was just one City firm whose partners played a major part in the Great War. 1600 stockbrokers joined up in 1914, creating the London Stock Exchange Battalion of Royal Fusiliers (unofficially known as the Stockbrokers). Four hundred stockbrokers failed to return. 11.49am BST Barclays remembers employees who died in World War INever forgotten. pic.twitter.com/iT1xRQLY2N 11.47am BST With ceremonies to commemorate World War I going on in Britain and Belgium, George Osborne has recalled the forgotten banking crisis of 1914. For six weeks, almost all the worlds stock exchanges were closed. The credit system upon which the business of this country is founded has completely broken down, an aide wrote to David Lloyd George, first of the three wartime chancellors. It may be impossible to finance the great expenditure which the country may be forced to incur.Wartime tax revenues quadrupled. Levies on everything from tea and cocoa to coffee and beer were raised. Hat importers were slapped with an excise duty, only to be let off the hook when civil servants could not say what counted as a hat. Income taxes were increased and a version of corporation tax was brought in.Inside the Treasury building on Horse Guards Road a war memorial bears the names of 102 men, once workers in this building, who fought and died in that terrible war. In this centenary year especially we honour them. It is right that we should. But let us not forget the work and ingenuity of those who toiled in London while their countrymen fought abroad. Andrew Bonar Law, the last of the wartime chancellors, reflected with pride on the Treasurys effort in August 1918. Finance in war is not spectacular, he wrote. It does not appeal so vividly to the imagination . . . . [but it is] if not the most striking, by no means the least important of our achievements in the common cause. He was right. For then, as now, national security is built on economic security. 11.13am BST Here is more on the departure of Spencer Dale from the Bank of England.The Bank said:Spencer has decided to pursue a new path in his career, as Chief Economist of BP plc. He will start his new position on 27 October 2014, after a post-employment cooling off period.It has been a huge privilege to serve the Bank of England over the past 25 years. It has also been an honour and a pleasure to work with so many talented people committed to serving the public good. This is a tremendous institution that has changed remarkably since I joined, and whose additional responsibilities mean it has a central role in ensuring economic and financial stability for the UK. To truly make the most of these new powers, I fully support the Banks objective to act as a single, cohesive policy institution. I will miss the Bank greatly and I wish I could have stayed longer to contribute more. But the opportunity to work in a different environment with one of the UKs pre-eminent companies was simply too good an opportunity to refuse. 11.06am BST More change at Threadneedle Street. The Bank of England has announced that Spencer Dale, its executive director for financial stability strategy and risk, is standing down.Dale had only taken up this position on 1 June 2014, after serving 6 years on the Monetary Policy Committee as the Banks chief economist. 11.02am BST Megan Greene, chief economist at Maverick Intelligence, is not convinced by the Portuguese authorities claim that taxpayers will not lose out through the Banco Espírito Santo bailout.BES resolution looking eerily like the Irish bank bailouts, albeit on much smaller scale. Any claims taxpayers won't be on hook are bogus.@economistmeg what are you especially concerned about?@AllisterHeath That the costs will be socialized in Portugal, requiring more austerity to reduce public debt 10.38am BST This graph tells the story of the UK construction industry over the last decade. 10.31am BST Douglas Flint, the HSBC chairman, who has just issued a long screed bemoaning the costs of banking regulation, has been speaking to journalists.Here are some of the Reuters snaps: 10.17am BST I wrote in a previous post about the £40,000 bricklayer... that was a big understatement.According to one property consultant quoted in Sun in April the best bricklayers can earn much more.Day rates in London are up to £150-£200 ($334, 242) a day [now] and those that are particularly experienced and industrious, laying up to 1,000 bricks a day can earn the equivalent of £100,000 a year. 10.14am BST Stefan Friedhoff, global corporates managing director for construction at Lloyds Bank commercial banking, says the fall in the rate of growth in July needs to be seen in contextJuly was still the 15th consecutive month of increased construction output, indicative of the sectors continuing return to health following the recession and the steady stream of positive news in the wider economy....The industry will remain cautious. While output is up, so are costs and reports of shortages of labour, with the inevitable knock-on effects this brings. Against this background it is perhaps not surprising to see some moves towards consolidation in the sector as construction firms look to put themselves in the best possible position to prosper.Construction output only accounts for 6.3% of GDP. Much attention will now be focused on the purchasing managers survey for the dominant services sector for July which comes out on Tuesday. The services sector has been driving UK growth (it expanded 1.0% quarter-on-quarter in the second quarter) so the July services purchasing managers survey will provide important evidence as to whether UK growth is losing a little momentum.... The robust construction purchasing managers maintains uncertainty over when the Bank of England will first edge up interest rates, given that it follows a softer manufacturing survey. It remains a very close call as to whether the Bank of England will act at the end of this year or hold off from raising interest rates until early-2015. Much will clearly depend on what happens with wage growth over the coming months as well as the economys overall performance. What is certain is that the Bank of England will keep interest rates at 0.50% at the end of the August MPC meeting on Thursday. 9.59am BST A little under a year ago, there was plenty of talk of the £40,000-a-year bricklayer.In July construction firms continued to report rising rates for workers.Looking ahead, a pressing concern for construction companies is the availability of materials and suitably skilled labour to support the recent growth streak. Cuts to supplier capacity have ushered in the worst period of input delivery delays since the survey began in 1997, while this summer has also been notable for construction firms reporting near-record increases in rates commanded for sub-contracted work. 9.57am BST PMI highlights 9.45am BST Construction may have fallen back in July, but the overall pace of growth remains the fastest since 2007.Tim Moore, Senior Economist at Markit and author of the Markit/CIPS Construction PMIJulys figures suggest the UK construction sector is enjoying its strongest cyclical upswing since the global financial crisis, while a new record rise in employment highlights that construction firms are increasingly confident about the sustainability of the upturn. 9.36am BST The UK construction industry slowed down in July, according to monthly figures from the Markit/CIPS purchasing managers index (PMI). The index was 62.4%, down on the previous month, although slightly ahead of expectations. A Reuters poll of economists had forecast 62%. 9.33am BST Breaking news: UK construction PMI falls to 62.4 v 62.6 in June. 9.31am BST Douglas Flint, the chairman of HSBC, is clearly unhappy with the regulation the bank has to comply with.The demands now being placed on the human capital of the firm and on our operational and systems capabilities are unprecedented. The cumulative workload arising from a regulatory reform programme that is unfortunately increasingly fragmented, often extra-territorial, still evolving and still adding definition is hugely consumptive of resources that would otherwise be customer facing. Add to this recent obligations to perform highly granular multiple stress tests which are inconsistent in definition and scenarios between major jurisdictions and so require considerable duplication of effort; recently announced significant wholesale market practice and competition reviews in the UK; re-organising the financial, operational and structural framework of the Group to respond to evolving thinking on cross-border resolution protocols; and, finally, planning what will be a multi-year project to separate and establish the ring-fenced bank in the UK, and the dimension of the execution risk is obvious. To be clear, we are committed and resourced to deliver all of the above. But there is extremely limited spare capacity. Prioritisation, which is clearly critical, will require support and guidance from public policy and regulatory bodies, particularly in the UK, regarding the juxtaposition of the recently announced competition review and preparation for the creation of the ring-fenced bank. Equally important is delivery of the stated intention of the Financial Stability Board and the G20 to seek to draw a close on fresh regulatory initiatives by the end of this year.We continue to make good progress with implementing Global Standards, aiming to deliver a consistent approach to risk management, particularly in relation to financial crime risk. Success will be reflected in reduced incidence and severity of future customer redress and less exposure to regulatory and legal penalties. Recent high profile financial penalties and legal proceedings initiated against individuals are serving their intended purpose of highlighting the risks, both to shareholders capital and to staff held responsible, of future infringement. Today, no-one in our industry can fail to be aware of the heightened expectations of society regarding the role of banks in supporting economic activity; nor can they be unaware of the potential penalties for failing to live up to these expectations, particularly regarding conduct issues or breach of trust 9.22am BST A few headlines from HSBC, from the wires: 9.17am BST Breaking news: HSBC pre-tax profits down 12% at $12,340m for the first half of the year. 9.04am BST Fighting talk from a Russian billionaire over US sanctions this morning.Gennady Timchenko, an oligarch who is currently under US sanctions, said western punitive measures would not turn Russian business against President Vladimir Putin.Vladimir Vladimirovich (Putin) is only thinking about the interest of Russia. Full stop. There can be no compromise here. And it wont even cross our (businessmens) minds to speak out about this subject. 8.47am BST Portugals main stock market, the PSI 20, is flat this morning after the turbulence of recent days.The PSI 20 has been fluctuating around zero and is currently 0.27% up. 8.35am BST Remember that $9bn fine US authorities handed out to Frances BNP Paribas? As part of the deal BNP pleaded guilty to violating sanctions against Iran, Sudan and Cuba, but French politicians were outraged at the size of the penalty.Now France has gained backing from the UK, Germany and Italy to challenge US regulators from imposing such heavy fines, according to a report in todays Financial Times.French officials did not dispute BNPs wrongdoing but have questioned the scale of the punishment and the principle of the US extending its legal reach over all foreign banks that deal in dollars. BNP had broken no French or European law.There should be co-ordination between regulators, as there should not be multiple jeopardy, agreed one senior European official, who confirmed that there had been informal discussions about putting the issue of bank fines on the G20 agenda. 8.19am BST Interesting news from Turkey, ahead of the countrys first direct presidential elections on Sunday.Statistics out this morning show inflation is running at 9.32% year-on-year. Economists had been expecting that number to dip below 9%, but soaring food costs are pushing the numbers the other way. 8.12am BST HSBC will be publishing results in just over an hour and is expected to reveal an 11% fall in profit, as a result of falling revenues, lower income from its Latin American and investment banking businesses.Here is a preview of the numbers from Reuters:HSBCs pretax profit fell 20% year-on-year in the first quarter and Europes biggest bank, which operates across 75 countries, should make a second quarter pretax profit of about $5.7 billion, similar to a year ago, underpinned by better margins in Hong Kong and growth in commercial banking profits.HSBC chairman calls for halt on rules ringfencing high-street business 8.01am BST Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and the business world.European investors have woken up to another bank rescue this morning, after troubled Portuguese lender Banco Espírito Santo received an emergency bailout over the weekend.The plan carries no risk to public finances or taxpayers.The adoption of this resolution measure is adequate to restore confidence in financial stability and to ensure the continuity of services and avoid potential adverse systemic effects.We are told that this problem is likely to remain a fairly contained one, but if anyone truly believes that then they are truly kidding themselves. With the European Central Banks (AQR) Asset Quality Review well under way, this bail out or recapitalisation, is unlikely to be the last, if these EU mandated stress tests are to be treated as in any way credible. Continue reading...
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