Financial life in a big town

The U.S. government on Sunday announced a massive rescue package for Citigroup - the latest move to steady the banking giant, whose shares plunged in the past week on fears about the bank’s health.

The plan has two key features:

First, the U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC) will backstop some losses against more than $300 billion in troubled assets.

Second, the Treasury will make a fresh $20 billion investment in the bank. The government has already injected $25 billion into Citigroup as part of the $700 billion bailout passed by Congress in October.

Investors liked the news. Citigroup shares gained 65% in morning trading. Major U.S. indexes soared at the start, with the Dow Jones industrial average climbing nearly 4%, while European markets were sharply higher.

Citigroup, which ranks as the nation’s fourth-largest bank based on deposits and employs more than 300,000 workers, has been one of the hardest hit financial firms since the mortgage market first started to unravel in the fall of 2007.

Over the past four quarters, the company has recorded close to $21 billion in losses.

The goal of the package was to restore confidence in Citigroup and the nation’s banking system. Shares of the firm plummeted in value last week on fears about Citigroup’s exposure to toxic mortgage securities.

"This is an important deal," said Gary Crittenden, Citigroup’s chief financial officer. "It’s important for Citi and its important for the industry broadly."

"It also signals the fact that the federal government is committed to the stability of the financial system broadly and in particular that they’re committed to Citi’s successful participation in it."

In return for the latest intervention, the government will receive a larger stake an additional batch of preferred shares - $20 billion for its direct investment and $7 billion as compensation for the loan guarantees. Citigroup will pay an 8% dividend rate on those shares.

In addition, the government will get warrants, or the right to purchase $2.7 billion worth Citigroup shares in the future.

The government will impose restrictions as well. Citigroup will be prohibited from paying out a dividend of more than a penny per share for the next three years and will face limits on executive compensation.

Plus, Citigroup will be expected to adjust mortgages for troubled borrowers, using procedures similar to those the FDIC implemented at IndyMac, which it took over last summer.

Under the terms of the Citigroup rescue package, the bank would be on the hook for the first $29 billion in losses on the covered assets, which includes mostly loans backed by residential and commercial mortgages. It would cover 10% of losses above that amount, with the government shouldering the rest.

Despite the massive rescue effort, regulators did not push for a management change at Citigroup. In recent days, there had been speculation that Citigroup CEO Vikram Pandit could step down. There had also been talk that the company was considering replacing Chairman Sir Win Bischoff, although the company denied such reports.

Last week, fears about Citigroup’s fate rattled equity markets around the globe and sent shares of the 196-year-old firm plummeting to levels not seen in over a decade business card printing.

By the end of the week, Citigroup shares lost close to two-thirds of their value, even as the company announced plans to layoff more than 50,000 workers and as its largest individual shareholder upped his stake.

By the close of trading on Friday, Citigroup (C, Fortune 500) shares had dipped below $4 a share, and were down 87% for the year.

The most recent slide in Citigroup stock comes on the heels of news earlier this month that the Treasury Department was abandoning its initial rescue plan to buy troubled assets from banks - Citigroup had been seen as a major beneficiary of that strategy.

Instead, as part of the $700 billion bailout package that was signed into law in early October, Treasury has focused on making direct investments in banks. In exchange for equity stakes, the agency has injected $25 billion into Citigroup and an additional $100 billion into eight other major U.S. financial institutions.

Top regulators, including Federal Reserve Chairman Ben Bernanke and Timothy Geithner, president of the New York Fed, were both involved in the weekend talks over Citigroup’s fate. Geithner is expected to be nominated to be Treasury Secretary by President-elect Barack Obama.

There had been concerns that had the government not stepped in, the New York City-based bank could have gone under throwing both the U.S. economy and the global financial system into further turmoil.

"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," Treasury, Federal Reserve and the FDIC said in a joint statement.

Despite the recent events, many industry experts had stressed that Citigroup is relatively healthy. Two veteran banking analysts - Mike Mayo of Deutsche Bank and Ladenburg Thalman’s Richard Bove - both advised clients last week that Citigroup could survive substantial loan losses.

The move to prop up Citigroup, however, will certainly raise eyebrows on Capitol Hill.

Sen. Richard Shelby, R-Ala., the ranking member of the Senate Banking Committee, was one lawmaker who voiced opposition to extending additional aid to Citigroup in an interview on ABC’s "This Week".

"Citi has got to save itself," said Shelby. "For the government to say we’re going to save Citigroup, I think that’s a mistake."

While he did not condemn the Citigroup rescue package altogether, House Financial Services Chairman Barney Frank, D-Mass., said that immediate steps needed to be taken to stem the tide of foreclosures for American homeowners.

"It is essential that TARP funds be used immediately to fund mortgage foreclosure relief," Frank said in a statement.

But many analysts wondered whether Citigroup even had another option. No other financial seemed willing or able to buy the bank and arguably there were few peers that the company could merge with. Selling assets would certainly raise cash for the company, albeit at distressed prices. Such a move would also do little to address concerns about the toxic assets on its balance sheet. 

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The Philippine central bank refrained from cutting its benchmark interest rate on concern lower borrowing costs would weaken the peso and fan inflation.

Bangko Sentral ng Pilipinas maintained the rate it pays banks for overnight deposits at 6 percent for a second month today, Governor Amando Tetangco told reporters in Manila. The decision was predicted by 7 of 16 economists in a Bloomberg News survey. Nine expected the bank to lower the benchmark.

“Rising readings on core inflation suggest there are still price pressures in the pipeline,'' Tetangco said. “Sources of upside inflation risk remain, including volatility in the foreign-exchange market.''

Bangko Sentral has reduced the amount of deposits it requires banks to hold in reserve, approved a dollar-lending facility and raised the amount banks can borrow from it to boost liquidity, rather than join counterparts in India and China in cutting interest rates to sustain growth amid a global recession. Those measures are adequate for the economy, Tetangco said today.

“The central bank is more concerned about the exchange rate so I think any rate cut may happen in January unless major economies slow further and drastically,'' said Joric Nazario, treasurer at Philippine Veterans Bank in Manila.

Peso Falls

The peso fell 0.2 percent today to a two-year low of 49.999 against the dollar. It's declined 17 percent this year, set for the biggest drop since 2000, shortly before former President Joseph Estrada was ousted from office by a popular revolt in January 2001.

“Reducing policy rates would affect capital flows,'' Deputy Governor Diwa Guinigundo said today cash in 1 hour. Keeping the rate steady “will prevent additional volatility in the foreign- exchange market.''

The peso's drop is eroding the value of local assets and threatening to swell the nation's $33 billion foreign-currency obligations. Foreign investment in stocks and bonds posted a net outflow of $911.5 million in the ten months to October compared to a net inflow of $3.7 billion in the same period a year ago, data from the central bank showed.

Remittances from overseas nationals this quarter will boost the supply of dollars and support the peso, Guinigundo said.

Bangko Sentral had raised interest rates three times since early June to damp inflation that accelerated to a 16-year high in August, before halting last month. Consumer-price gains have slowed to 11.2 percent in October and may fall below 10 percent next month, Tetangco said yesterday.

Flexibility to Review

“If the upside risks start to retreat next month or in 2009, there's a flexibility to review'' the policy stance, Guinigundo said today. Still, possible increases in government wages may be a risk to inflation, he said.

Expansion in the Southeast Asian nation may slow to an eight-year low of 3.5 percent next year while average inflation will likely ease to 6 percent, the International Monetary Fund said last week.

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As the U.S. economy continues its downward spiral, economists are warning that the relative strength Canada has shown so far will likely be the "last hurrah."

Any remaining hopes that the fallout from the collapse of the U.S. housing market could somehow be contained grew dimmer yesterday. Another volley of dismal economic news cast doubt on recent efforts to shore up battered credit markets and revive consumer and business confidence, just as world leaders gathered at an emergency summit in Washington.

Topping the list of bad news yesterday was a record 2.8 per cent plunge in U.S. retail sales in October as consumers, concerned about their jobs, dramatically curbed their spending.

In another sign that retailers should brace for a tough holiday shopping season, another closely watched indicator, the Reuters/University Michigan survey of U.S. consumer sentiment, remained near a 28-year low despite rising slightly in November.

U.S. consumer fears are already being borne out in that country’s job market. The parade of layoffs continued yesterday as Sun Microsystems Inc. said it plans to cut as many as 6,000 jobs as sales of its server computers plunge.

Those job cuts come on top of other major layoffs announced recently across financial services, the auto industry and other sectors, and appear to augur badly for the U.S. jobless rate, which hit a 14-year high of 6.5 per cent in October.

Evidence mounted this week that the U.S. contagion is spreading quickly to other parts of the world. The European Union said yesterday that the 15 countries that use the euro are officially in recession, after their economies shrank for the second straight quarter. The news came a day after the Organization for Economic Co-operation and Development said its members, representing the world’s developed economies, appear to be in recession.

"Financial markets remain under severe strain," U.S. Federal Reserve chair Ben Bernanke said yesterday.

So far, at least, Canada appears to be weathering the storm better than most creditscores.

"We’re certainly going into it in a lot better shape than we’ve gone into the prior two serious recessions, in the early 1990s and the early 1980s," said Douglas Porter, deputy chief economist at BMO Capital Markets. He pointed to strong government balance sheets, "relatively healthy" corporate balance sheets, a strong banking sector and financial markets that "are closer to functioning normally than in most other economies."

But "despite all those positives, the fact of the matter is that we still export a huge portion of our output to the U.S., and we cannot escape the pull on the U.S. economy completely – there’s just no way," Porter said. "We’ve certainly hung in there better than the U.S. economy right up to and including October, but I think the weakness in the U.S. is just so pervasive, as shown by the October retail sales results, that it will seep into the Canadian economy more broadly."

A TD Economics research note echoed those concerns yesterday, calling recent upbeat indicators "Canada’s last hurrah."

"Given the data that has come out of the U.S. in the last few weeks, this strength is not likely to hold up through the last quarter of the year," economist James Marple wrote.

In a troubling sign that Canada’s housing market is softening, the Canadian Real Estate Association reported yesterday that the number of homes sold through the Multiple Listing Service plunged 14 per cent in October to the weakest level since July 2002. The drop suggests "a major downshift in consumer psychology," CREA chief economist Gregory Klump said.

With files from the Star’s wire services

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VIENNA–Oil prices slipped below $59 a barrel Wednesday as investors grappled with the prospect that global growth next year will slow more than originally feared, cutting demand for gasoline and other crude products.

Expectations that a snapshot of the U.S. inventories will also show reduced consumption of oil and derivatives also acted as a drag on the market.

Light, sweet crude for December delivery was down 58 cents to $58.75 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. The contract overnight fell $3.08 to settle at $59.33, the lowest closing price since March 2007.

Oil prices have fallen about 60 percent in four months, plunging from a record $147.27 in mid-July.

"We have a pretty good idea that global growth is going to be pretty awful next year and probably not much better in 2010," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "There was clearly a bubble scenario in all commodities and that bubble has burst.''

Investors are pricing in slowing crude demand growth from China, whose economy, the world's fourth largest, was once thought to be a counterweight to weakening demand from the U.S. and Europe.

U.S. bank Morgan Stanley earlier this week cut its 2009 forecast for Chinese economic growth to 7.5 per cent from 8.2 per cent. The bank expects Asia outside of Japan to grow 5.5 per cent next year, the U.S. economy to shrink 1.3 per cent and Europe to contract 0.6 per cent.

"China is now seen as less of a backstop to falling demand in developed countries," Pervan said. "With definitive slowing in China, the market is even more sensitive to negative economic news out of the U.S. and Europe.''

The World Bank said Tuesday it expects developing countries to grow 4.5 per cent next year, down from its previous forecast of 6.4 per cent growth. Developed countries will likely contract 0.1 per cent in 2009, the Bank said.

Trader and analyst Stephen Schork noted that the reaction to Beijing's planned economic stimulus package earlier this week – and the subsequent oil price fluctuations – were symptomatic of the jittery state the market finds itself in short term cash loan.

"It is important to remember that price is a function of the crowd's emotional input to a given fundamental event." he said in a research note. "Thus, those traders who thought it was a good idea to pay $65 Sunday night were probably the same traders who had to sell (at) $59 yesterday afternoon.''

Investors have brushed off two recent production cuts by the Organization of Petroleum Exporting Countries, and prices have continued to fall amid talk of a third quota output reduction next month.

Qatar's prime minister, Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, said Tuesday that "fair" oil prices of between $70 to $90 per barrel would ensure that expensive oil exploration could continue and help to avert price spikes in the future.

"The market has become so demand focused that obvious support mechanisms, like OPEC cutting supply, don't have the same impact,'' said Pervan, who expects prices to fall to $45 a barrel during the first quarter of next year.

Investors will be watching for signs of slowing U.S. demand in the weekly oil inventories report to be released by the U.S. Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 1.1 million barrels last week, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.

The Platts survey also showed that analysts projected gasoline inventories rose 850,000 million barrels and distillates increased 1 million barrels last week.

In other Nymex trading, heating oil futures slipped by nearly 3 cents to $1.90 a gallon, while gasoline lost more than a penny to fetch $1.29 a gallon. Natural gas for December delivery fell nearly 4 cents to $6.74 per 1,000 cubic feet.

In London, December Brent crude fell 42 cents to $55.29 a barrel on the ICE Futures exchange.

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Ford Motor reported a $3 billion quarterly operating loss on Friday and said it would reduce staff and capital spending in order to preserve its dwindling cash.

Ford said it would cut salaried employment costs by 10% - reducing compensation of its white collar workers by eliminating merit pay, bonuses and the company’s matching contributions to their retirement accounts.

But even with those savings, the company said it’s likely to lay off more salaried staffers. It also said hourly staff - mostly factory workers covered by union contracts - would be reduced by an additional 2,600 through a voluntary buyout package.

The company, which earlier this year sold brands such as Jaguar and Land Rover, said it would continue to look to sell assets.

Ford Chief Executive Alan Mulally warned that while the company is confident that it is taking the right steps to respond to the downturn, it does not see a quick turnaround in demand for autos in either North America or Europe.

"We believe the downturn in industry volume will be broader, deeper and longer than previously expected," he said during a conference call. Sales volume isn’t expected to improve until 2010, he said.

Ford’s loss came to $1.31 a share, excluding special items, far worse than the penny a share loss it reported on that basis a year earlier. Analysts surveyed by earnings tracker Thomson Reuters had forecast a loss of 93 cents a share.

The company had a one-time gain of $2.2 billion, related to the accounting of its retiree health care expenses. With that gain, it reported a net loss of $129 million, or 6 cents a share, an improvement from the $380 million, or 19 cents a share, it lost on that basis a year earlier.

While the company did not give any specific guidance on results going forward, Chief Financial Officer Lewis Booth said the current quarter could see a larger increase in losses than seen in the third quarter.

But the operating losses continued to burn through the company’s cash position, leaving with its auto operations with only $18.9 billion in cash on hand at the end of the quarter, down $6.3 billion from the start of the quarter.

Concern has been growing that the nation’s automakers could run out of cash as soon as next year due to rising losses and high borrowing costs faced by the companies. Ford had been considered to be in the best cash position of the three U.S.-based automakers.

Ford, which saw the volume of its U.S. vehicle sales plunge 25% in the quarter, reported that overall revenue tumbled by $9 billion in the quarter to $32.1 billion. High gasoline prices at the start of the quarter, followed by tight credit, increased job losses and record lows for consumer confidence late in the quarter combined to keep potential auto buyers on the sidelines.

The company disclosed that its fourth-quarter vehicle production would be cut by an additional 40,000 from previous plans. That will leave its quarterly production target at 430,000, down roughly a third from year-ago levels.

Ford said it will move ahead with product development plans for most vehicles, especially for smaller, more fuel efficient vehicles cash advance loans. But it plans to reduce spending on the development of large vehicles and will delay other unspecified vehicles "that will be deferred until industry volumes recover."

Ford also announced it would seek to raise additional cash by using equity-for-debt swaps. But the company’s stock has already lost about three-quarters of its value in the last 12 months. Automotive investor Kirk Kerkorian, who invested just over $1 billion in Ford shares earlier this year, has started selling that stake at a large loss and has said he may get out of the company’s stock altogether.

Ford (F, Fortune 500) is not the only automaker seeing trouble. Rival General Motors (GM, Fortune 500) is forecast to report a jump in losses in the quarter later in the day Friday. On Thursday, Japanese rival Toyota Motor (TM), which is poised to see its first annual decline in U.S. auto sales, slashed its earnings outlook for its current fiscal year.

The chief executives of GM, Ford and privately-held Chrysler LLC, as well as the president of the United Auto Workers union, met with House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid on Thursday to seek support for a wide-ranging bailout package for the industry. Both leaders voiced support for additional help for the sector following their meetings.

Mulally said he was encouraged by the discussions with members of Congress, but added that Ford isn’t counting on additional federal help because it can’t be sure of what will be approved. He also disclosed that Ford is also talking to governments in other countries where it has operations as well.

Ford would be willing to discuss granting stock or stock warrants to the U.S. government in return for getting help, Mulally said. No details of such an equity stake in the automaker had been discussed, he added.

Among the topics discussed were a $25 billion loan to fund union-controlled trust funds that would be set up in the coming year to cover the health care costs of retirees and their family members. Shifting about $100 billion of those costs from the automakers’ balance sheet to the trust funds was a key concession the companies won from the UAW in the 2007 labor deals.

The discussions also touched upon allowing the automakers to tap into the $700 billion bailout of Wall Street firms and the nation’s banks that was passed by Congress last month. Treasury has so far rejected auto-industry inquiries about accessing that pool of money.

The automakers also renewed their pre-election request to double the $25 billion low-interest loan program approved by Congress, as part of energy legislation, to help automakers convert to making more fuel-efficient vehicles in an effort to meet the demands of car buyers and new federal rules.

Ford shares were up 1% in mid-morning trading Friday following the report. 

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Sprint Nextel says it swung to a third-quarter loss as it continued to hemorrhage customers.

The nation’s third-largest wireless provider said Friday it lost $326 million, or 11 cents per share, during the three months ending Sept. 30. That contrasts with a profit of $64 million, or 2 cents per share, a year ago.

Excluding one-time items, the Overland Park, Kan.-based company says it would have broken even during the quarter.

Thomson Reuters says analysts it surveyed expected a profit of 3 cents per share american cash advance.

Sprint Nextel (S, Fortune 500) says revenue fell 12% to $8.81 billion. That’s below the $8.85 billion expected by analysts.

The company says it lost 1.3 million customers during the quarter. 

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NEW YORK — The stock market posted its biggest plunge after a presidential election Wednesday as reports on jobs and service industries stoked concern the economy will worsen.

Citigroup Inc. tumbled 14 percent and Bank of America Corp. lost 11 percent as the Standard & Poor’s 500 index and Dow Jones industrial average sank more than 5 percent. Nucor Corp., the largest U.S.-based steel producer, slid 10 percent after bigger rival ArcelorMittal doubled production cuts amid slowing demand. Boeing Co. lost 6.9 percent after UBS AG forecast a 3 percent drop in global air traffic next year.

"We had an election; that doesn’t mean the problems go away," said Kevin Rendino, a Plainsboro, N.J.-based money manager at BlackRock Inc. who oversees $10 billion.

The S&P 500 tumbled 5.3 percent to 952.77, erasing Tuesday’s 4.1 percent rally. The Dow retreated 5.1 percent to 9,139.27. The Nasdaq composite index fell 98.48 to 1,681.64.

The slide halted an 18 percent rebound from the S&P 500’s five-year low on Oct. 27. The benchmark for U.S. equities has lost more than 35 percent this year.

A report by ADP Employer Services showed companies cut 157,000 jobs in October, the most since November 2002.

Citigroup lost $2.05 to $12.63, and Bank of America plunged $2.78 to $21.75. The S&P 500 financials index sank 8.8 percent.

Nucor sank $4.16 to $35.50.

Boeing fell $3.67 to $49.55. Its share price, which rose 28 percent from Oct. 10 through Tuesday, "is at least six to nine months from bottoming and beginning to mover higher again," David E. Strauss, a New York-based analyst at UBS, wrote.

Textron Inc. lost $1.71, or 9.2 percent, to $16.93. The world’s biggest business-jet maker reduced the number of Citation jets it plans to deliver next year default payday loan.

General Growth Properties Inc. tumbled almost 50 percent to $2.25 for the biggest drop in the S&P 500.

MBIA Inc. and Ambac Financial Group Inc. slumped after the bond insurers posted wider losses than analysts estimated. MBI fell 22 percent to $8.16. Ambac fell 41 percent to $2.01. Slumping credit markets forced the companies to increase reserves for claims.

Pioneer Natural Resources lost 15 percent to $24.79. The oil and natural-gas producer in North America and Africa reported third-quarter earnings that missed analyst estimates and said it will cut drilling activity.

Sara Lee Corp. slid 14 percent to $10.20. The maker of frozen cakes and Jimmy Dean sausages said full-year profit will be less than previously estimated.

Marsh & McLennan Cos. fell 12 percent to $26.06. The world’s second-biggest insurance broker said profit dropped 78 percent in the third quarter amid the slowing economy and price declines for commercial coverage and reinsurance.

Medco Health Solutions Inc. climbed 9.1 percent to $41.47 for the biggest of only 13 advances in the S&P 500. A surge in use of generic and mail-order prescription drugs fueled a 38 percent increase in third-quarter profit at the largest U.S. drug benefits manager.

Molson Coors Brewing Co. gained 8.3 percent to $41.78. The third-largest U.S. beer maker reported market-share gains in Canada and the U.K.

Chesapeake Energy Corp. climbed 8.2 percent to $24.83 on speculation it will be acquired by BP PLC.

General Motors Corp. slipped 16 cents, or 2.8 percent, to $5.56.

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NEW YORK–Hotels, construction firms and retailers saw business shrink in October as slower spending and declining employment sent the service sector into contraction, another gloomy sign for the economy.

The Institute for Supply Management, a trade group of purchasing executives, said Wednesday its service sector index suffered a sharper-than-expected drop to 44.4 in October from 50.2 in September.

Wall Street economists surveyed by Thomson Reuters expected a reading of 47.5. A reading below 50 signals contraction.

"In short, horrible, but only to be expected in the wake of the equity plunge and the subsequent collapse in confidence," said Ian Shepherdson, chief economist at High Frequency Economics, a private research firm.

Asked in a one-time question whether the financial crisis was affecting business, 82.2 per cent of respondents said they had reduced spending, hiring or both, according to the ISM report.

New orders, deliveries, backlogs and inventories all fell.

The one glimmer of good news could also be further evidence of a recession: After a summer of price hikes, the index of prices paid showed its largest one-month decline since the index was first reported in 1997 bad credit pay day loans.

One of the few industries reporting growth was utilities, but that business is not immune to the downturn. Duke Energy Corp., one of the nation's largest electric power companies, said Wednesday its third-quarter profit fell 65 per cent. It blamed the worsening economy, as well as record Midwest storm outages, for the decline.

On the retail front, intimate apparel maker Maidenform Brands Inc. on Wednesday lowered its 2008 profit and sales outlook to reflect the bankruptcies of department store chains Mervyns LLC and Boscov's Department Store LLC.

A manufacturing report issued Monday by ISM showed the worst reading since September 1982, when the country was near the end of a 16-month recession.

Stocks fell in late-morning trading, with the Dow Jones industrial average down more than 120 points. The broader indexes also fell.

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UBS AG said a government bailout is helping to stem client money outflows but warned that it could take a 6 billion Swiss franc ($5.20 billion) hit in the fourth quarter due to accounting effects.

The world’s largest wealth manager had already reported most of its third-quarter figures, including a small profit, last month when it announced it was getting a 6 billion franc capital injection from the government and was also unloading $60 billion of risky assets into a central bank fund.

UBS, one of the European banks hit hardest by the financial crisis, said on Tuesday it had seen some improvement in client flows since the central bank deal. It reported net outflows of 83.6 billion francs in the third quarter.

“Whilst the situation was very difficult at the start of October, there have been encouraging signs for net new money flows following the announcement,” it said.

UBS shares were up 0.2 percent to 18.99 Swiss francs at 1040 GMT, compared with a 2.2 percent stronger Dow Jones index of European bank stocks. The stock is down nearly 60 percent since the start of the year, slightly underperforming the European index which is 52 percent lower this year.

“Management claims the trends after the settlement with the Swiss National Bank have been encouraging, but we have seen these statements before,” said Dirk Becker, analyst at brokerage Kepler Capital Markets.

“Our impression is that it might take a while before UBS gets back to meaningful inflows.”

The Swiss bank, which suffered massive damage to its reputation in the subprime crisis and is under pressure at home to return executive bonuses, said it expected market conditions to remain “challenging” and shrinking client assets to affect fees cash til payday loan.

UBS, which has changed its top management this year and is undergoing a massive restructuring, will give an update on client flows at an extraordinary shareholder meeting on November 27, Chief Financial Officer John Cryan told an analysts’ call.

Q4 HIT BY CHARGES, REVERSAL OF CREDIT GAINS

Cryan said the bank was sticking to its goal of returning to profit in 2009 while continuing to reduce its huge balance sheet. But he said he expected it to take a 2 billion Swiss franc hit in the fourth quarter if its funding costs remain at current levels.

UBS also expects a charge of about 4 billion francs on equity sold to the central bank fund in the fourth quarter.

“The total loss is about 6 billion Swiss francs. It cannot be offset by new revenues. They will show a loss in the fourth quarter,” Georg Kanders, an analyst with WestLB, said.

Cryan said UBS will also be affected by goodwill and restructuring charges in the fourth quarter.

UBS confirmed on Tuesday it had made a third-quarter net profit of 296 million Swiss francs ($256.3 million), helped by a gain on its own credit of 2.2 billion francs, plus a tax credit of 913 million francs. 

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British bank Barclays Plc is raising 7.3 billion pounds ($12.1 billion) from investors from Qatar, Abu Dhabi and elsewhere to allow it to avoid taking UK government rescue cash, it said Friday.

The fundraising is being made through a range of complex capital instruments, which could see Middle East investors owning about one-third of the bank.

An issue of reserve capital instruments (RCIs) will pay annual interest of 14 percent until June 2019. Warrants representing billions more pounds could also be issued.

Britain’s second biggest bank is raising up to 3.5 billion pounds from Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family. That could give him a 16.3 percent stake in the bank.

Barclays shares initially jumped after the news as investors welcomed the bank’s ability to raise cash in tough markets and an adequate trading update, but later eased back. At 0930 GMT they were unchanged at 205-1/4 pence after touching 228p.

The bank said group profit in the first nine months of this year was “slightly ahead” of the same level a year earlier.

It took a net writedown of 129 million pounds from credit market writedowns for the third quarter, but said 1 billion pounds of gains on debt it carries were reversed in October.

Barclays is raising up to 2 billion pounds from Qatar Holding and 300 million from Challenger, an investment vehicle of a member of Qatar’s royal family freecreditreport. That could leave Qatar Holding a 12.7 percent stake and Challenger with 2.8 percent.

Barclays’ investor base has been transformed in the past two years, as it has raised funds from investors in China, Singapore and Japan as well as the Middle East and the bank expects to benefit commercially from the links as well as getting cash.

“There has been a significant shift in the availability of capital and economic power in the world over the last five years and we’re ensuring we’re aligned with those changes,” said John Varley, Barclays chief executive.

AVOIDING TAXPAYER CASH

The bank is seeking to raise up to a further 1.5 billion pounds from the sale of MCNs (mandatorily convertible notes) with existing and other investors.

Asked on a conference call whether Barclays has enough capital to avoid more fundraising, Varley said: “Yes, we have what we need.”

Barclays earlier this month turned down an offer of government funds under Britain’s 400 billion bailout package and said it would raise capital privately.

Rivals Royal Bank of Scotland, Lloyds TSB and HBOS have agreed to take up to 37 billion pounds of taxpayers’ funds to help rebuild balance sheets hit by the credit crisis and prepare for possible recession. 

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