January Update: Essential News

Fed rate zero
The US Federal Reserve cut interest rates in December to a target rate between zero and 0.25%, the lowest rate since records began in 1954. Its Federal Open Market Committee says weak economic conditions “are likely to warrant exceptionally low levels of the Federal funds rate for some time.”

BoE rate 2%
The Bank of England cut interest rates in late November by one percentage point from 3% to 2% - the lowest level since 1951. Minutes from the MPC meeting showed it had considered a more dramatic cut initially.

IMF 09 forecast
This year will be a very difficult year for the global economy and economic recovery won’t be a possibility before 2010 at the earliest, according to the International Monetary Fund. Making his comments in December, IMF managing director Dominique Strauss-Kahn said “bailout fatigue” was slowing down discussion about the future shape of government oversight of financial markets.

BAA grounded
The Competition Commission says it requires BAA to sell its Gatwick, Stansted and Edinburgh airports to break its monopoly of UK air travel in southeast England and lowland Scotland. BAA responded by upholding its view that the Commission has not provided “compelling evidence” that selling Stansted and Gatwick will increase competition.

Last post
Royal Mail must part-privatise to survive, a government report has found, and Dutch rival TNT is thought to be interested in forming a “strategic minority partnership” with the company. Royal Mail was found to be less efficient than rival western European companies and has lost £500m in profit from technological reform of its sector.

Pot of gold
The Irish government agreed to recapitalise its banking system to the tune of E10bn. The Irish Department of Finance says the state may use money from the National Pension Reserve Fund to inject into institutions affected by the credit crisis, and affected parties must submit proposals for recapitalisation in January.

Pound/Euro parity
Sterling is approaching parity with the euro as fears that the UK economy will suffer a harder, more prolonged recession than other European countries works its way into sentiment on the currency. This prompted reopening of the debate on whether the UK should join the euro, though the government said it was not considering this. On 15 December, after commission and handling fees, the BBC reported customers at some UK airports got just E197.13 for £200.

Bailout no truck
Ford CEO Alan Mulally blames the pace of debate over the proposed $14bn automotive industry bailout for slowing down a US recovery from downturn. “The debate in Washington has slowed down thawing the credit crunch,” Mulally told reporters. The first bailout plan was rejected by the House of Representatives on a lack of strong business plans from the major auto companies.

FTSE-100 shuffle
In its annual review, the FTSE-100 index admitted Home Retail Group, business services company Serco Group, gold miner Randgold Resources, Tate & Lyle and insurer Amlin. For news on Tate & Lyle’s new FD, read our People page. Stagecoach Group, Lonmin, Wood Group (John), Fresnillo and Petrofac were removed from the index.

Boris London plan
Mayor of London Boris Johnson has recommended forming a lobbying board to maintain London’s profile as a leading international financial centre amid recession and as companies dump the UK for more favourable tax domiciles. The Financial Services Board will comprise representatives from the City of London Corporation and from around government, acting as “a politically independent and strong voice for London’s financial services”.

Goldman cracks
Goldman Sachs reported its first loss since going public in 1999. The bank saw a $2.12bn loss for the three months to end of November 2008, compared with net income of $3.2bn at the same time in 2007. The diluted value of its common stock dropped to $4.97 for the period from $7.01 the same time in 2007.

TECHNICAL UPDATE
- Auditing
For the first time, the Audit Inspection Unit published in-depth performance reports on a sample of audits conducted by seven leading firms – the Big Four plus BDO, PKF and Grant Thornton. The AIU, part of the Financial Reporting Council’s Professional Oversight Board, said, “The quality of auditing in the United Kingdom remains fundamentally sound with no systemic weaknesses. However, they identify some important issues in certain areas in relation to which further improvements need to be made by the audit firms.” It highlighted shortcomings such as possible conflicts of interest involving tax partners and internal auditors, the amount of evidence obtained or kept on file, and the rotation of engagement partners.

- Anti-corruption law
German electronics group Siemens has paid E1bn to settle corruption cases brought by the US and German authorities. It paid $450m to the US Department of Justice in a plea bargain over a criminal action and $350m to the SEC to settle a civil action under the Foreign Corrupt Practices Act. Separately, it paid E395m to the Munich Public Prosecutor’s Office. The $800m penalty dwarfs the previous $44m record fine for such violations paid by Baker Hughes, says law firm Lovells.

Gartner ­ correction
In last month’s IT Strategy column, a sentence written by Robert Jaques was misinterpreted in our editing process and changed to read that Gartner’s credit rating had been downgraded. This is incorrect. It was, in fact, Gartner’s forecasts for IT spending that had been downgraded. We apologise for the error.