German banks hit
Moody's downgrades
Ratings agency Moody’s has broken ranks and downgraded its rating on six German and three Austrian banks - including Germany’s second largest lender, Commerzbank. Citing concerns that even the safest banks will be unable to avoid the eurozone’s economic woes forever, Moody’s said the German and Austrian banks face risks to the quality of their assets if the world economy slows down further and the eurozone crisis worsens. Meanwhile, the European Commission has published plans to encourage pan-European banking union in a bid to prevent banking collapses from hitting taxpayers in future.
Aussie surge
Economy booms
The Australian economy enjoyed a strong opening quarter to the year, expanding at twice the rate forecast by most economists. GDP growth of 1.3 per cent, up from 0.6 per cent in the last quarter of 2011, was driven by investment in mining and an unexpected boost in consumer spending with household spending up 1.6 per cent. Overall the 12 months to the end of March saw the Australian economy expand by 4.3 per cent. Nonetheless, the outlook is less certain and earlier this week the Reserve Bank of Australia lowered its interest rate to a three-year low of 3.5 per cent due to the moderate economic outlook.
Hot Scotch
£1bn investment
The boom in demand for Scotch whisky from emerging markets has prompted drinks giant Diageo to announce a £1bn investment in the Scottish whisky industry over the next five years. Only two years after opening a 10m litre a year distillery in Speyside, Diageo is now planning another new distillery and expansion of several other sites in a bid to increase its capacity by up to 40 per cent. Chief executive Paul Walsh also hinted at another new distillery within five years. Rival Pernod Ricard recently announced plans to increase its whisky capacity in Scotland by 25 per cent over the next year.
£40bn time bomb?
UK banks warning
The UK banking sector is sitting on a toxic waste heap of £40bn worth of undeclared losses according to research from shareholder group PIRC. Its analysis of the accounts of the UK’s top five banks shows that a total of £40bn of bad debts need to be written off over the coming year but have not yet been booked against profits due to international accounting standards which mean companies cannot provision against potential losses. PIRC believes this has allowed banks to pay out inflated bonuses and dividends rather than withholding funds for future use.
Nasdaq payback
Facebook compensation
Brokerages who lost out on commissions due to technology problems on the day of Facebook’s float are in line for compensation from Nasdaq, with some claiming up to $100m was lost on the day due to software glitches. This will be little comfort to investors who bought shares in the $100bn float but who have since seen the value of the social media giant slide by more than 20 per cent in less than three weeks. Meanwhile, James Gorman, chief executive of float underwriter Morgan Stanley, has hit back at criticism, saying investors who expected to make a quick return on the float were 'naïve'.
Building slows
Data depresses
More signs that the UK economy is rapidly running out of puff came in the form of data from the UK construction industry, which grew at its slowest rate for three months in May. Confidence also appears to be on the wane, coming in at its lowest reading since October, and companies in the sector reported that they are winning contracts on costs mainly, which suggests the recently buoyant job creation in the sector may come under threat. After the dismal manufacturing sector data of the previous week, all eyes are now on Thursday’s services sector data.
