There continues to be lots of noise about the emergency Budget, although none of us know exactly what will happen. BP shares appear to have stabilised, for now at least, while the FSA is due to be broken up and the World Bank renews its call on China to revalue its currency..
As we approach next week’s emergency Budget there’s plenty of speculation as to what might happen. But as the potential changes have been discussed ad nauseam and none of us know exactly what’s going to be announced, it’s all getting a bit tedious so roll on next Tuesday!
If you’re interested in reading about the potential changes then take a look at these previous articles: article 1 article2.
Financial Services Authority R.I.P.
The new Chancellor, George Osborne, this week announced the breaking up of the FSA.
The Bank of England will take charge of all the big picture stuff (such as the economy and spotting any issues that might affect stability) via a new Financial Policy Committee. It will also oversee two new authorities: The Prudential Regulation Authority (PRA) and Consumer Protection & Markets Authority (CPMA).
The PRA will regulate banks and insurers while the CPMA will be responsible for ensuring financial consumers are treated fairly.
What change will this mean for you and I? Very little I suspect. It should hopefully reduce the risk of future financial bubbles and subsequent crisis (although I’m not convinced) but otherwise it’ll be more or less business as usual – at the expense of vast amounts of paper pushing and taxpayer’s money.
The FSA's Retail Distribution Review proposals (read this article for more details) are still due to be implemented by 2013 and Hector Sants, the FSA’s chief executive who presided over its apparent failure, will head up the PRA - do chief executives ever pay for failure?.
BP
BP shares have recovered very slightly after the oil giant agreed to pay $20 billion into a special compensation fund over the next three years and suspend dividend payment for the rest of this year.
Of course, the final compensation bill could be a lot higher, with some estimates running at $100 billion, but at this stage the final number really is anyone’s guess.
There is some concern that ratings agency Fitch has slashed BP’s credit rating from AA (high quality) to BBB (just above speculative), as this could push up borrowing costs if BP does need to raise money. Interestingly, the price charged by markets to insure against BP failing to repay debt soared this week, suggesting they’re worried.
But in BP’s favour any further compensation payments are likely to be spread over a number of years, so provided the oil price holds up it should be able to fund payments from its annual profits (typically $20-30 billion pre-tax). Although this could mean dividends being put on hold for longer, it reduces the likelihood that BP will hit the rocks.
Chinese Renminbi
The World Bank has reiterated its call for China to let its currency strengthen against others. China pegged the renminbi to the US dollar in July 2008 to protect the price of its exports during the credit crunch See this previous article for more info.
But now things have picked up the renminbi looks artificially weak, giving Chinese exporters an unfair advantage. There’ll have to be change at some point, but expect the arguments to run for some time yet. When revaluation dos occur we’ll feel the pinch at the till, especially if the US dollar continues to strengthen against the pound, so enjoy cheap Chinese goods while you can...
Read this article at http://www.candidmoney.com/articles/article120.aspx
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