Finance & Business World

Britain's banks will get an unprecedented 50 billion-pound ($87 billion) government lifeline and emergency loans from the central bank after the freeze in credit markets threatened to bring down the financial system.

The government will offer to buy preference shares from Royal Bank of Scotland Group Plc, Barclays Plc and at least six other banks, and provide about 250 billion pounds of loan guarantees to refinance debt, the Treasury said in a statement today. The Bank of England will make at least 200 billion pounds available. The plan doesn't specify how much each bank will get.

Prime Minister Gordon Brown is following U.S. President George W. Bush, who approved a plan last week to spend $700 billion to prop up financial institutions with untested measures as equities plunged around the world.

“The global market has ceased to function,'' Brown said today at a press conference in London. “The banking system must be sounder, and that is why we are putting the capital in.''

Brown's government was forced to act as the economy tumbled toward a recession and shares of the country's biggest banks lost more than half their value in a week. Edinburgh-based RBS, Britain's third-largest bank by market value, had its credit rating cut by Standard & Poor's for the first time in almost a decade on concern that its financial health was deteriorating.

Nationalizing Banks

The steps to partially nationalize the industry provide the “building blocks to allow banks to return to their basic function of providing cash and investment,'' Chancellor of the Exchequer Alistair Darling said today.

Britain joins the U.S. and many European countries in rushing out bailout measures. Germany, Ireland and Greece have pledged to guarantee savers' deposits. Iceland has taken over two of the nation's three biggest banks, and Spain has agreed to spend as much as 50 billion euros ($68 billion) to buy bank assets.

The U.K. initiative comes after the government took control of Northern Rock Plc and Bradford & Bingley Plc earlier this year and arranged the takeover of Edinburgh-based HBOS Plc, the country's biggest mortgage lender. Darling and Brown are trying to prevent the financial-services industry, which accounts for about a fifth of London's economy, from collapsing under the weight of the global credit crunch.

Financial-service companies will cut 12,000 jobs before the end of the year, about 33 percent more than a year earlier, according to estimates last month from the Confederation of British Industry, the country's biggest business lobby group.

Brown's Pledge

The government said today it will make 25 billion pounds immediately available to banks in the form of preference shares and is ready to provide another 25 billion pounds. The amount available to each bank will vary, depending on their dividend payouts and executive pay policies. The plan requires the banks to lend to small businesses and home owners, the government said.

The rescue may break Brown's pledge to keep debt below 40 percent of the country's gross domestic product. The budget deficit climbed to the highest since 1993 in August, with debt amounting to 43 percent of GDP when the liabilities of Northern Rock are factored in. The Treasury probably will provide details later today on how it will fund the plan.

“These measures are better than blanket guarantees, which don't change the behavior of banks,'' said Peter Hahn, a fellow at the Cass Business School in London and former managing director of Citigroup Inc. “The taxpayer has direct exposure and direct control on the banks, which is a good thing.''

Besides RBS and HBOS, Abbey, Barclays Plc, HSBC Holdings Plc, Lloyds TSB Group Plc and Standard Chartered Plc and Nationwide Building Society also are eligible to receive funding (payday loans).

London-based HSBC, Europe's biggest bank, said it doesn't plan to receive capital from the U.K. because it has sufficient funding. Standard Chartered, the London-based banks that makes most of its money in Asia, also it won't ask for government funding.

Bank Stocks

Banks rebounded from earlier declines after central bankers in the U.S. and Europe announced a coordinated cut in interest rates. HBOS jumped 63 percent to 152.8 pence at 12:05 p.m. in London, RBS gained 22 percent, and Lloyds TSB rose 5.1 percent.

U.K. banks have been talking to government officials for weeks about selling stakes to the Treasury and raising the guarantee on bank deposits.

“The package addresses the most significant issues in the market, namely confidence in the strength of the banking system and the working of the money markets,'' Barclays Chief Executive Officer John Varley said today in statement.

The government should have specified how much capital goes to each bank, said Robert Talbut, who manages 31 billion pounds at Royal London Asset Management in London. “To say 25 billion pounds is available and it's up to each bank how they will draw it down isn't credible,'' he said.

Short of Capital

While RBS denied yesterday that it asked the government for help, the bank has been short of capital since it paid about 14 billion euros ($19 billion) last year for the investment banking and Asian units of Amsterdam-based ABN Amro Holding NV. The 12.3 billion pounds that RBS raised by selling shares at 200 pence apiece in June wasn't enough, and shares now trade for about half as much.

RBS, Barclays, Lloyds TSB and three other U.K. banks need to repay as much as 54 billion pounds of debt by the end of March 2009 as borrowing costs reach record highs and banks are reluctant to lend to each other. The total, which includes bonds, convertible bonds and commercial paper, is triple the debt repaid in the same period a year ago.

RBS has about 11.5 billion pounds of obligations coming due in the next six months, while Barclays, the U.K.'s second-biggest bank by market value after HSBC, has 15.9 billion pounds maturing, according to data compiled by Bloomberg.

The government plan will address “unprecedented conditions in the financial system'' and help RBS strengthen its position, RBS Chief Executive Officer Fred Goodwin said in a statement.

HBOS-Lloyds TSB

RBS, which bought NatWest bank for 24 billion pounds in 2000, is struggling with rising defaults and a slumping housing market in Britain and the U.S. The bank, which had 5.9 billion of writedowns and a net loss of 761 million pounds in the first half, will have about 1.1 billion pounds of writedowns later this year, threatening its ability to reach a target of raising Tier 1 equity capital to 6 percent by the end of 2008, analysts at JPMorgan Chase & Co. said Oct. 1.

HBOS fell 41 percent yesterday to a new low as investors became skeptical of its government-arranged takeover by London- based Lloyds TSB, the U.K.'s biggest provider of checking accounts.

Stock Swap

Lloyds TSB agreed Sept. 18 to buy HBOS in a stock swap valued at the time at 10.4 billion pounds. HBOS's market value has since fallen to 5.1 billion pounds, even though Lloyds TSB's takeover was still valued yesterday at more than 10 billion pounds.

Lloyds TSB “is working with HBOS management on all aspects of the transaction,'' the London-based bank said today in a statement. The U.K. funding plan “is very much in the interests of shareholders and customers,'' HBOS said in a separate statement.

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HAVANA – The global financial crisis has dealt another blow to Cuba, already reeling from two powerful hurricanes and soaring import prices, and it could force the government to speed up reforms, Western diplomats and businessmen say.

The crisis has made credit tighter and softened demand for nickel, the island’s key export. It could also slow tourism revenues and financial support from family members living abroad.

It comes at a particularly bad time for Cuba, where there were already signs of a mounting foreign-exchange shortage before the crisis surged on Wall Street and hurricanes Ike and Gustav caused at least $5 billion (U.S.) in damage – roughly 10 per cent of Cuba’s gross domestic product.

Cuban President Raul Castro warned the country starting in mid-summer that belts would have to be tightened because of rising costs for fuel and food imports.

At the same time, the government began taking steps to ease its financial crunch, said one businessman, who like others interviewed, requested anonymity.

"First they insisted suppliers allow 360 days for payment instead of 180. Then they told some suppliers and creditors they needed to restructure debt," he said.

Even before the two hurricanes struck within 10 days of each other starting on Aug. 30, at least one Spanish bank had stopped handling letters of credit for Cuba deals.

Some of Cuba’s payment problems have been settled or are being worked out now, sources said, but the availability of future credit for Cuba is in question.

"Credit has always been hard to come by and expensive because of their payment history and U.S. pressure," a European economic attach? said.

"It’s hard to see how it could become that much worse, but who knows (cash loans)."

Cuba, under U.S. economic sanctions for decades, is not a member of the International Monetary Fund or any other multilateral lending organization. The country has a Moody’s rating of Caa1, or speculative and poor.

How much worse an already difficult financial situation might become will depend on support received from oil-rich ally Venezuela as well as China, and the Cuban government’s willingness to push ahead with economic reforms, the sources said.

When Raul Castro officially replaced ailing brother Fidel Castro as president in February, he instituted some small changes such as the opening of cellphone and computer sales to the public and began broader reforms in agriculture.

The changes raised hopes, so far unfulfilled, of more reforms to modernize the country’s state-run economy.

"If Cuba quickens reform, for example opening up the retail sector to private individuals and co-operatives, that would help domestically and be a positive signal even to China," said a leader of the organization of Spanish companies operating in Cuba.

The financial crisis also could provide an opening to renegotiate some of the debt hanging over Cuba’s economy, diplomats said.

Cuba’s central bank has told creditors the country’s foreign debt increased by $1.1 billion in 2007 to $16.5 billion.

"In every crisis there is opportunity, and a possible solution would be for Cuba to negotiate its debt with the Paris Club," another European diplomat said.

Sourse

The $700 billion rescue that the U.S. House considers today reflects the unintended consequences of decisions made by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke since March.

Beginning with the orchestrated purchase of Bear Stearns Cos. by JPMorgan Chase & Co., each step was a bold effort to forestall a collapse of the financial system. The economy grew in the first two quarters of this year, and financial distress eased for a while after the Bear Stearns rescue. Still, each decision to bail out or not created more instability, leading to further runs on securities firms, banks and insurers.

“Every time you tinker with this delicate system even small changes can create big ripples,'' said Dino Kos, former head of the New York Fed's open-market operations and now a managing director at Portales Partners LLC in New York. “This is the impossible situation they are in. The risks are that the government's $700 billion purchase of assets disturbs markets even more.''

Paulson and Bernanke insist that the program to buy troubled mortgages and other securities is needed to revive lending and restore stability to markets. What they haven't discussed is the risk that they inadvertently make matters worse. By creating a government pool of distressed real-estate and bad debt, they could depress the housing market further. Risk may become even more concentrated through a wave of bank mergers that, if unsuccessful, would stick taxpayers with an even higher bill.

Conference Call

The decision to launch the biggest bailout in history came on a Sept. 17 conference call, when Bernanke and Paulson pulled the trigger on a proposal etched out over several months. Over the previous two days, they let Lehman Brothers Holdings Inc. fail and seized American International Group Inc. The reaction to their visible hand: a rout in financial stocks, paralysis in the trillion dollar inter-bank loan market, and flight from money market mutual funds.

Treasury and Fed officials had long been uncomfortable with the way the safety net had to be expanded to catch Bear Stearns. Not a single creditor had suffered a default as the company was swept into JPMorgan Chase & Co. with the help of a $29 billion Fed loan. Stock investors received about $10 each.

Their decision to pull back and let shareholders get wiped out in Fannie Mae, Freddie Mac, and then Lehman “sent shivers through investors,'' said Peter Kovalski, who oversees financial-services stocks for Alpine Woods Capital Investors LLC's $12 billion portfolio. “Everybody kind of backed off and said if this is the way the government is going to play the game, we don't want to risk our capital.''

Assumptions Thrown Out

Lehman's bankruptcy toppled other assumptions that investors had made. Bear Stearns, deemed too big to fail by the Fed and Treasury, had $399 billion in total assets (instant payday loans). Lehman Brothers had $639 billion in total assets, possibly posing a bigger systemic risk than Bear.

“There was a perception, right or wrong, that after Bear Stearns, that in any firm as big, the senior debt holders would be okay,'' said Karl Haeling, head of debt distribution at Landesbank Baden-Wuerttemberg, New York, Germany's largest state-owned bank. “Obviously, that was the wrong bet.''

Bernanke and Paulson began their discussions at the end of the day on Sept. 17, when the Standard & Poor's 500 Financials Index fell 8.9 percent.

Investors concluded after the AIG takeover — the price of an $85 billion loan — that any future federal aid would come at a similar cost, and they fled.

`Oh, My God'

“Are we imploding right here?'' Joseph Saluzzi, co-head of Themis Trading LLC in Chatham, New Jersey, and his colleagues asked each other on Sept. 17. Shares of Goldman Sachs Group Inc. were down 21 percent at noon and Morgan Stanley lost 36 percent. “People thought, `Oh, my God, if Goldman's going out, we've got a real problem.'''

Lehman's collapse caused the Reserve Primary Fund, the oldest U.S. money-market fund, to write off $785 million of debt issued by the investment bank, forcing the fund to break the buck, meaning its net asset value fell below $1 a share.

The run on money funds, prompted in part by the government's decision to let Lehman fail, caused yet another extension of the safety net by the Treasury and Fed.

On Sept. 19, invoking Depression-era authority, the Fed's Board of Governors authorized its Boston branch to provide emergency loans to commercial banks to purchase asset-backed commercial paper from money mutual funds to help them meet shareholder redemptions.

Paulson's Goal

The Treasury is gambling that the $700 billion plan now being debated in Congress will kick-start capital markets and lending. If the government is a buyer of mortgage securities, they will trade higher, Paulson told Congress. If the banks are cleansed of bad assets, they will find new capital and the cycle of lending will start again.

Investors say once again the government's big-footing in the financial markets could create more problems than it solves.

Officials “have designed a financial bailout plan that is not only misdirected, but may further exacerbate problems in the housing market,'' says Eric Hovde, chief investment officer at Hovde Capital LLC, which manages $1 billion in financial services stocks. “Just as foreclosure sales are pressuring housing prices today, government sales will only make matters worse.''

Sourse

The U.S. Senate endorsed a revised $700 billion plan to tackle a financial crisis that has shaken world markets and drawn warnings of approaching economic catastrophe.

The plan now faces a final hurdle in the House of Representatives, which rocked global markets this week by rejecting an earlier version. President George W. Bush, speaking after Wednesday night’s 74-25 Senate vote, called the bailout “essential to the financial security of every American”.

But the crisis, beginning with a collapse in the U.S. housing market and spreading to major financial institutions, has reverberated beyond American shores, hitting European banks and spurring moves there to formulate a similar support plan.

U.S. figures showing plunging U.S. auto sales, led by a 34 percent slide at Ford Motor Co, added to evidence the crisis was spreading now to the “real economy”, threatening industry, smaller businesses and jobs direct payday loan cash advance.

The bailout plan, equivalent to some $2,300 per American, is intended to reinvigorate worldwide credit markets and interbank lending that had frozen up while overleveraged financial institutions staggered under the weight of failed mortgages.

It involves the Treasury taking “toxic” or bad loans off the hands of institutions.

But market participants warned that the rescue package is not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.

“Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize,” said Masamichi Adachi, senior economist at JPMorgan in Tokyo. 

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NEW YORK–Burger King Corp. said Thursday it is now cooking with trans fat free cooking oils at all of its restaurants nationwide.

The No. 2 hamburger chain also said all of its menu ingredients, including its baked goods, will contain zero grams of trans fat by Nov. 1.

Trans fats are partially hydrogenated vegetable oil. They can raise bad cholesterol and lower healthy cholesterol, increasing the risk of heart disease, according to doctors. Trans fats are used to increase the shelf life of foods and preserve flavor.

Many of Burger King's restaurants have already been using trans fat free oil for months. Burger King first announced in July 2007 that it would switch to trans fat free oil in all of its U.S. restaurants by the end of 2008.

"Our suppliers were able to manufacture enough quantity to get us there sooner than our committed deadline," said chief executive and chairman John Chidsey.

Chidsey did not offer any details about the new oils being used at Burger King restaurants, saying the information is “proprietary.''

He said customers who have tried the trans fat free foods either do not notice any difference in taste or told the company they tasted better. Eliminating trans fat can change the flavor of foods – a side effect that has made extensive testing of new oils a necessity (no qualifying payday advance. restaurants to trans-fat free oil as fast as its competitors.

Yum Brands Inc.'s KFC and Taco Bell switched in 2007 and Wendy's International Inc., the No. 3 burger chain, cut out trans fat oil a year earlier.

Chidsey said given the scale of its restaurant system – the company operates 11,500 restaurants worldwide – the timeline for making the switch nationwide was mostly up to suppliers particularly since there is some overlap in the oils used by other companies.

"We're at the mercy of our suppliers," he said.

McDonald's Corp., the leader in the fast food business, has also lagged behind in switching its oils and in making its baked goods trans fat free.

It began using trans fat free oil to make its french fries in all its restaurants in May and said it would use the oil in its baked goods, pies and cookies in all locations by the end of the year.

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Gov. Arnold Schwarzenegger sent an open letter on Thursday to all members of the California Congressional delegation urging them to vote in favor of the $700 billion federal financial bailout package, formally called the Emergency Economic Stabilization Act.

“This plan is critical to the well being of every community in California and across the nation. Swift action in Congress is needed to restore confidence in our financial system,” the letter states.

“This is how serious the situation is: Our State Treasurer warns that the credit market has already frozen up to the point that it chills even the state of California’s ability to meets its short-term cash flow needs,” he wrote, adding that the state will be unable to sell voter-approved bonds for highway, school, housing and water construction projects.

He says the “situation is urgent” and that the crisis demands swift and bipartisan leadership.

California members of the U.S. House of Representatives voted 29 to 24 in favor of the failed bailout package on Monday. This is how they voted, as reported by the Associated Press:

• Voting for the legislation:

Democrats: Howard L. Berman (Valley Village), Lois Capps (Santa Barbara), Dennis Cardoza (Atwater), Jim Costa (Fresno), Susan A. Davis (San Diego), Anna G. Eshoo (Menlo Park), Sam Farr (Carmel), Jane Harman (Venice), Michael M. Honda (San Jose), Zoe Lofgren (San Jose), Doris Matsui (Sacramento), Jerry McNerney (Pleasanton) George Miller (Martinez), Nancy Pelosi (San Francisco), Laura Richardson (Long Beach), Jackie Speier (Hillsborough), Ellen O no fax payday loans. Tauscher (Alamo), Maxine Waters (Los Angeles), Henry A. Waxman (Beverly Hills).

Republicans: Mary Bono Mack (Palm Springs), Ken Calvert (Corona), John Campbell (Irvine), David Dreier (San Dimas), Wally Herger (Chico), Jerry Lewis (Redlands), Dan Lungren (Gold River), Howard P. “Buck” McKeon (Santa Clarita), Gary G. Miller (Diamond Bar), George Radanovich (Mariposa).

• Voting against the legislation:

Democrats: Joe Baca (Rialto), Xavier Becerra (Los Angeles), Bob Filner (Chula Vista), Barbara Lee (Oakland), Grace F. Napolitano (Norwalk), Lucille Roybal-Allard (East Los Angeles), Linda T. Sanchez (Lakewood), Loretta Sanchez (Garden Grove), Adam Schiff (Burbank), Brad Sherman (Sherman Oaks), Hilda L. Solis (El Monte), Pete Stark (Fremont), Mike Thompson (St. Helena), Diane Watson (Los Angeles), Lynn Woolsey (Petaluma).

Republicans: Brian P. Bilbray (Carlsbad), John T. Doolittle (Roseville), Elton Gallegly (Simi Valley), Duncan Hunter (Alpine), Darrell Issa (Vista), Kevin McCarthy (Bakersfield), Devin Nunes (Tulare), Dana Rohrabacher (Huntington Beach), Ed Royce (Fullerton).

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The Department of Justice has filed a lawsuit against the Washington Metropolitan Area Transit Authority in the U.S. District Court for D.C., alleging the transit authority discriminates against employees based on religion.

The woman named in the complaint is Gloria Jones, a member of the Apostolic Pentecostal faith, who applied for a bus driver position with the transit agency. The religion encourages women to wear long skirts, not pants.

The complaint alleges that WMATA didn’t hire her because her religious practices prevented her from complying with a part of WMATA’s uniform policy for bus drivers.

The complaint says that WMATA denies requests for religious accommodations to its uniform policy.

“While public employers have the authority to require uniforms, they cannot refuse to accommodate an employee’s religious practice when reasonable accommodation is possible,” said Grace Chung Becker, acting assistant attorney general for the civil rights division.

The alleged discrimination would fall under violation of Title VII of the Civil Rights Act of 1964, according to the Justice Department, which prohibits discriminating employees based on race, color, sex, national origin and religion no teletrak payday loans.

The complaint alleges that WMATA failed to reasonably accommodate and provide equal employment opportunities to its staff and potential employees when their religious practices conflict with WMATA’s uniform policy.

The suit seeks an order for WMATA to undo those alleged practices and seeks monetary damages and other relief for victims of religious discrimination by WMATA.

A spokeswoman for the transit authority said the agency does not comment on ongoing litigation.

The Justice Department’s civil division would not comment on the expected timeline of the suit because cases against transit systems can go in different directions.

This is the ninth Title VII suit the civil rights division has filed so far this year.

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