Capital Eyes on the Market – Thursday 28th February 2013

SuperRich or not so rich - "wealth is what you make it" - health and wellbeing in spirit are equally important - Why not get in touch today and arrange an intial conversation with a financial and wealth professional whose priority is to understand you and your family, your financial situation and help you plan for the things you want to accomplish and the future life you want to enjoy: 01276 471083 or cedar@s-cm.comWe take a look at some of the recent activity and events taking place in the UK and globally. For a more in-depth insight into how things may impact on your own financial planning priorities, please do get in touch. Enjoy a financial conversation as part of your regular financial planning review at SewellBrydenGunn.

The Bank of England is understood to be considering the possibility of negative interest rates in respect of its central bank and depository services to the banking industry at a wholesale level. Although it is argued that this is not connected with and should not affect the retail banking sector, common sense dictates that at some point down the line, if this were to be introduced then banks would of course seek to recoup their costs and the inevitable way of doing that would be through retail customers and account holders….

The European Banking Authority, which is charged with writing the rules for banks across the 27 nation bloc, is still concerned that some institutions are tweaking the way they measure risk in order to cut capital requirements. It has been found that half the variation in banks’ risk weighted assets (RWAs) cannot be explained by objective factors such as portfolio and regulatory differences. This difference in the calculation of the capital ratio is important because the ratio is probably the most critical measure of financial strength. The RWAs are used as a denominator and if a bank understates its risk it will appear stronger than it actually is, thereby potentially putting investor and other stakeholder interests at greater risk than may be tolerable. Following this line of thought to its logical conclusion and with the global markets having been through meltdown at least once too often in recent times, one could conclude or at least imagine that where a bank was shown to be manipulating its risk measurements, even if it had undergone no further financial impediment, that bank could be headed for at best a major complaint event and charges of disingenuous behaviour or at worst a raft of heavy lawsuits and financial and regulatory penalties which, in turn, would detract from stakeholder value…..

Italian elections continue to cause uncertainty and thereby force the euro lower against the dollar. Sterling has not been helped by the revelation that a member of the Bank of England’s Monetary Policy Committee had hinted at serious considerations for further government debt purchases through quantitative easing to boost UK growth…..

Tesco is reportedly set to pay a £6.5m fine to settle a very long running dairy product price fixing investigation being carried out by the Office of Fair Trading in relation to a number of dairies and retailers…..

Right to Buy scheme sees a surge in potential purchases by tenants, rekindling thoughts of the Thatcher years when the virtues of private ownership were heavily promoted. Under the previous Labour administration, Right to Buy activity dwindled to almost nothing as home price discounts were severely reduced, making home ownership unaffordable for many…..

Core capital requirements for new entrants into the banking industry will be lower than the capital ratios required for existing UK banks, it is reported. This is seen as a positive step which would help new entrants to compete more effectively with existing banks such as Barclays, Lloyds Banking Goup and Royal Bank of Scotland. Currently the dominant banks in the UK must maintain core capital ratios of between 9 and 10 per cent of their risk adjusted assets. New entrants will need to maintain a core capital ratio of 4.5 per cent of their risk adjusted assets. this is just one of a number of reforms aimed at reducing barriers to entry into the banking market place. Of course, new entrants will only have so long to raise their core capital ratios and will not be allowed to pay bonuses or dividends until standard core capital requirements had been met. However, it is expected that the overhaul of the capital requirements will provide enough stimulus to encourage new banks and lenders into the market….

Food shortages in the United States are reported to be on the horizon. Potentially widespread shortages of meat poultry and eggs supplies are being flagged up by trade groups as budget cuts within the US Department of Agriculture would affect the ready supply of food inspectors which are in turn required by the meat and poultry companies to enable product processing which is only allowed where continuous on-site mandatory inspections are successfully passed. The knock on effect on feed and grain prices due to increased livestock retention by farmers is not yet predictable. However, the issue has already caused speculation on the futures markets, with adverse implications for livestock pricing…..

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