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Weekly News 11th to 16th July 2011

Local Economy

Barratt, the housebuilder, expects pre-tax profits for the year to June to be around £40m compared to a loss of £33m in the previous year.  Barratt’s net debt fell [about 10%] to £330m on June 30, down from £366.9m a year ago. It completed 11,171 homes during the year, down [1.8%] from 11,377 in 2009/10.  Five years ago Barratt was completing 22,000 homes a year. Barratt has secured £1bn of finance to fund progress over the next four years (J 15/07). [Barratt was Newcastle-based, but has been based in the Midlands for some years –Ed.]

Express Engineering, based in Gateshead, has bought Northern Precision Engineering out of administration (in North Tyneside).  Express has re-employed 40 of the staff at the firm.  Both businesses serve the aerospace, medical, defence and energy industries (J 12/07).

NE Economy

Southern Cross announced that the next few months would see “the orderly closure of the group’s affairs”.  The Darlington-based care provider’s landlords of 250 homes have agreed to take them back. Negotiations with the owners of the remaining two-thirds (502) are ongoing.  Southern Cross has identified 132 “limited life” homes, that it considers commercially unviable (FT 12/07, J12/07).

Job Gains

BT is to employ 280 call centre sales staff at its new £10.5m facility at Harton Staithes, South Tyneside.  It is expected to open in October.  (J 16/07)

2Touch, a contact centre operator, hopes to create around 300 jobs over the next two years.  The Sunderland-based firm has secured a six-figure contract to handle marketing and distribution of products for Wearside retailer Duvet and Pillow Warehouse.  As e-commerce sales have risen, 2Touch has increased its workforce from around 700 to nearly 1,000 in the last two years (J 11/07). [2Touch is part of the Acxiom Corporation, of the US –Ed.]

Ford Aerospace Ltd has secured a £4m extension to a helicopter parts contract from  Augusta Westland, the helicopter manufacturer. The South Tyneside-based aerospace manufacturer hopes to add 20 staff over the course of the three-year contract (J 14/07).

Patrick Parsons, the Newcastle-based civil and structural engineering company, expects to create 12 new jobs after launching an environmental division and extending overseas operations.  (J 15/07)

Job Gains North East

Rank Group aims to create 100 jobs at a new casino, due to open this year, on Chandler’s Wharf, Stockton, Teesside.  (J 12/07)

Job Losses

Hoffman Inns, a subsidiary of Bar Operations, has entered administration putting 29 bar, restaurant and hotel staff in Sunderland at risk.  Bar Operations, which employs 32 staff, entered administration on June 21.  Both businesses are continuing to trade, while the administrator seeks a sale.  (J 16/07)

Job Losses North East

Around 90 North East jobs will be lost when Co-operative Financial Services closes its door-to-door sales team. (J 16/07)

National Economy

The UK’s trade gap widened in May to £4.1bn, up from £3.1bn the month before – Office for National Statistics.  The rise was driven by a 13% surge in imports of semi-manufactured goods, notably chemical products which rose 20%.  (J 13/07)

Inflation slowed to 4.2% in June (Consumer Price Index) from 4.5% in May.  On the Retail Price Index measure, inflation slowed 0.2 percentage points to 5% (FT 13/07).

UK unemployment fell to 2.45m in the three months to May, a rate of 7.7%.  The dip in unemployment was accounted for by a rise in students in full-time education, many not looking for jobs.  The number of people claiming Jobseeker's Allowance in June was 1.52m, up 24,500, the largest rise for two years.  (FT 14/07).

Retail sales values in June were 0.6% lower on a like-for-like basis compared with a year ago – British Retail Consortium (BRC).  (J 12/07)

Rejection rates for small firms applying for loans have increased eightfold since the banking crisis struck in 2007 – SME Finance Monitor.  In 2007, 4% of small businesses applying for bank finance were turned down compared to 27% in the latest survey.  (FT 12/07)

Regional Growth Fund: The government received 500 bids totalling £3bn for £950m of regional funding.  (FT 15/07)

 

International Economy

Eight out of 90 banks across Europe failed stress tests – European Banking Authority.  Five Spanish, two Greek and one Austrian bank failed.  (J 16/07)  The aggregate exposure to Greek sovereign debt of the 90 banks tested was €98.2bn, as of the end of 2010 (FT 16/07). [The tests are widely discredited in financial circles because they fail to test the effect of any sovereign default. The core Tier 1 capital of the four UK banks tested falls by a quarter under the scenario for 2012 -Ed.]   

The IMF has urged the European Central Bank to approve a €30bn liquidity package to keep Greece’s banks afloat.  The package was agreed in February by the IMF, ECB and European Commission, but has not yet been made available to banks in Athens (FT 14/07).

 

Late News on the Eurozone agreement including second Greek bailout (after FT 23/7):

The Eurozone Summit (21/7) agreed a debt restructure package for Greece. The former Deputy Governor of the Bank of England, Sir John Gieve, reckoned it “will certainly secure their August holidays” but we will have to come back to this in the autumn (R4 Today 22/7).   

This second Greek bailout involves, for the first time, a contribution from the private sector bond-holders (banks). The consequent default, although a ‘partial default’, is the first by a western country for over 60 years. 

 

This gives Greece:

The €109bn second bailout from the EFSF (apparently to cover the next 2 or 3 years of its borrowings). Of this, only €34bn will be direct loans like in previous bailouts. €75bn will be used to induce bondholders to participate.

Private creditors are (estimated) to provide about €35bn, in debt relief. The banks say this equates to a 21% cut in their assets held in Greek Govt debt. [about the same as the write-down they have already booked –Ed.]  

Softer terms; extension of the duration of repayment by Greece, to up to 30 years.

A lower interest rate on borrowings from the EFSF (the ‘bail-out fund’); this benefits Ireland and Portugal too.
 

To tackle the risk of contagion to other countries (Spain and Italy): the EFSF has new powers to a) provide loans to such countries, before they are in immediate danger of insolvency. b) Buy up bonds in secondary markets. [Activation of these new powers is subject to unanimity of member state. Also, the EFSF will need to be enlarged to meet these two new roles –Ed.]. Ireland and Portugal have been given a doubling of the period for them to repay.

The FT has clarified important detail not on the BBC website:
Eurozone leaders have obtained the agreement of the ECB (which warned of the risks of such a partial default).

The ratings agencies have started to declare this a partial default.

Greek banks, as holders of €67bn of Greek govt debt, will be recapitalised, at a cost of €20bn from the EFSF. EU banks have about €98bn of Greek govt debt.

The ECB agreed its rules (requiring ‘good collateral’) for its loans will be suspended in the “one-off” case of Greece. Greek banks have €100bn of loans from the ECB.

Fortunately, the banks holding Greek govt debt are now known (as part of the stress tests) making a 2008-style panic less likely.

Also, Spanish and Italian benchmark bond-yields are around 5½%, lower than in the last two weeks, but still close to unsustainable levels.

 

Development

Newcastle’s Exhibition Park has been awarded £2.4m from the Heritage Lottery Fund.  The money will fund improvements to drainage, electricity, water and sanitary provision.  (J 11/07)