The US bank rescue programme has got under way with nine firms to share $125bn (£80bn) in cash injections.

The Treasury move is designed to bolster the banks’ balance sheets so they will begin more normal lending.

They are Citigroup, JP Morgan Chase, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of America Mellon, State Street and Merrill Lynch.

Smaller banks will share another £125bn in the the cash-for-equity scheme, part of bigger $700bn government plan.

The funding comes from the US government bank rescue plan, approved by Congress after much wrangling and originally designed to provide liquidity by buying up toxic bank assets.

As part of the bail-out, the US Treasury aims to buy stakes in banks in return for capital.

One of the banks, State Street, said it had agreed to a scheme whereby the Treasury will invest £2bn in preferred shares and also be given warrants to obtain additional stock.

Banks have been struggling since the middle of 2007 with rising mortgage defaults and a credit crisis that has virtually frozen inter-bank lending and severely restricted lending to consumers.

On Friday PNC Financial Services Group used some of the $700bn government bail-out money to buy a rival, National City, for $5.6bn.

This will make PNC the US’s fifth largest bank by deposits with the fourth most branches.

News reported by The BBC

The world stock markets have rallied at the beginning of the week from a low on Friday 10 October 2008. The FTSE 100 had a low of 3,932 rising to 4,394,but since then has fallen back by 122 points as investors fear that the action from the worlds governments to strengthen the financial system will not prevent a worldwide recession.

Asian governments are the latest to action bank support

Both Europe and US have announced a series of steps to secure their banks to bring back confidence to the banking section by recapitalise banks and by providing bank lending guarantees to get credit markets moving again and the Asian Governments have now followed suit. Worldwide governments have now pledged around $3 trillion as part of efforts to stem the financial crisis facing the world, which is seen as the worst since the 1930′s depression.

Despite the UK running head-long into a recession by December 2008 consumer price inflation has soared to 5.2% in September 2008, which is up from 4.7% in August as the annual rate of inflation for energy and other household bills reached 15%.

The UK’s Retail Prices Index has come in at 5%, which is the figure used to work out pensions and benefits for the coming year.

There are signs however, that inflation is slowing, as oil prices have dropped to around $78 a barrel and food prices are showing signs of reduction and other commodity prices are falling. For example, coffee prices are tumbling due to the credit crunch which is prompting some exporting countries to stockpile the beans in an attempt to push prices higher. Indonesia is the world’s largest coffee producer and on Tuesday they threatened to halt shipments until prices recover and that they were to seek government help to address the crisis.

Major European economies have announced multi-billion euro rescue schemes to shore up their banks.

Germany has approved a package worth up to 500bn euros (£393bn; $683bn), France will spend about 350bn euros and Spain has set aside 100bn euros.

The bulk of this money will be used to guarantee lending between banks – part of a plan agreed to this weekend by the 15 nations that use the euro.

Meanwhile, President George W Bush said nations were taking “decisive action”.

Speaking with Italian prime minister Silvio Berlusconi, he said the US was continuing to work closely with Europe.

The cash injection by France, German and Spain was echoed by similar moves by Austria and Italy.

Austria is to spend up to 85m euros, while the Italian government pledged to inject as much money as needed without giving any figures.

France and Germany will also use the cash to take stakes in ailing banks.

The announcements helped to lift investor confidence, with stock markets rising worldwide.

Two-fold plan

The two-fold plan involves guaranteeing lending between banks and taking stakes in financial institutions – similar to the bank rescue in the UK announced last week.

“This is a massive engagement” French President Nicolas Sarkozy

The US is also getting ready follow in Europe’s footsteps and purchase stakes in financial institutions.

“We are designing a standardised programme to purchase equity in a broad array of financial institutions,” said Neel Kashkari, the treasury official in charge of the US government’s $700bn bail-out package.

Monday’s other key developments included:

– The UK government said it would inject up to £37bn of taxpayers cash into Royal Bank of Scotland, Lloyds TSB and HBOS
– US shares, tracking earlier gains in Europe and Asia, rose strongly in early trading as investors welcomed fresh efforts by global leaders to end the recent financial turmoil
– The world’s major central banks said they would offer financial institutions an unlimited amount of short-term dollar loans to help stem the crisis
– The Icelandic stock exchange said share trading would remain suspended until Tuesday because of continuing “unusual market conditions”.

‘Massive’

French President Nicolas Sarkozy said France would offer up to 40bn euros to provide banks with the financing they needed via a public company in which the state would the only shareholder.

“This is a massive engagement,” he said.

He added that no financial institution would be allowed to collapse.

German Chancellor Angela Merkel said that the measures being taken would only work if they were accompanied by more robust regulation that will curb “market excesses.”

“The package passed by the German government will serve the financial system and ought to serve to protect the citizens and not just serve to protect the banking system,” she said.

Fund

Unlike France, Germany and Britain, Spain’s Prime Minister Jose Luis Rodriguez Zapatero said that Spain did not need to take stakes in any banks because its banks were solvent.

However, last week the Spanish government announced the creation of a 30bn euro fund to buy assets from Spanish banks to help stabilise the lending industry and unfreeze credit.

At present banks are reluctant or unable to loan cash to fellow financial institutions due to fears about whether the money will be paid back.

It is this lending between banks that traditionally lubricates the banking system, freeing up cash for lending to private individuals and other firms.

News reported by The BBC

Banks have largely won the latest round of a High Court battle over the fairness of overdraft charges.

Judge Mr Justice Andrew Smith says most customers will not be able to use common law to challenge bank charges levied mostly between 2001 and 2007.

But NatWest customers might still have this legal avenue open to them after he failed to give their terms a clean bill of health.

This is one of a series of legal hearings about overdraft fees.

OFT investigation

The OFT wants legal confirmation that it can rule if these charges of up to £35 are fair or not.

Customers have complained they have been unfairly overcharged hundreds, and sometimes thousands, of pounds when falling into the red.

But the banks want to protect the estimated £2.6bn a year of income they gather by charging people for going overdrawn.

The OFT has been investigating bank charges since April 2006.

Frozen

The judge’s ruling on Thursday followed a three-day hearing in July.

“Some banks will be breathing a sigh of relief”

Marc Gander
Consumer Action Group

His ruling has an impact on the thousands of claims for the refund of overdraft charges which are frozen in county courts.

These county court hearings were suspended last year when the Office of Fair Trading and eight banks agreed on a test case to clarify the situation with overdraft charges.

After today’s ruling, they are likely to remain frozen for the foreseeable future.

Latest hearing

The judge’s latest ruling focused on whether historic bank terms were unfair penalties under common law, and if customers who had been charged for going overdrawn could challenge them.

“Now we have had this judgement we are keen to move on to the next stage as quickly as possible” Angela Knight, BBA

He decided that customers could not challenge Barclays, Clydesdale, HSBC and the majority of Abbey’s terms. A Barclays spokesman said they were “pleased” with the decision.

The same was true for HBOS, except for Intelligent Finance’s terms which required more examination. More discussion was also needed regarding the terms and conditions of Lloyds TSB’s accounts.

The judge said that Royal Bank of Scotland Group, which owns NatWest, needed to provide clearer arguments about their terms before he could give them clearance.

Bank ‘relief’

“Some banks will be breathing a sigh of relief as the judge appears to have decided that these charges were not penalties under common law,” said Marc Gander, of the Consumer Action Group.

Angela Knight, chief executive of the British Bankers Association, said it was a “positive decision” for the banks.

“The question of penalties was one of the claims made by the OFT which triggered the initial court case. Now we have had this judgement we are keen to move on to the next stage as quickly as possible,” she said.

An OFT spokesman said: “This is another staging post in a complex legal process. We are progressing our investigation as quickly as possible and are in continuing discussion with the banks about our provisional views on the issue of fairness.”

Battle continues

The judge did indicate that, even though common law largely could not be used to challenge historic overdraft fees, the OFT has the authority to examine these fees under the 1999 Unfair Terms in Consumer Contracts regulations.

There are other legal avenues for customers to explore and they may eventually get their money back.

The banks will appeal against the OFT’s initial High Court victory in April . The High Court ruled that the OFT can assess whether fees are unfair.

Another High Court hearing is expected to start in the new year on the substantive issue of whether or not bank overdraft charges are unfair.

Only after these hearings, and any possible subsequent appeals, will people finally know whether they can claim back overdraft charges.

News reported by The BBC

Britain’s banks and building societies are set to make even more cutbacks in their lending, according to a Bank of England report.

The report also said that with economic conditions worsening, more borrowers are expected to default on their loans.

The gloomy report is likely to raise hopes of a cut in UK interest rates – currently at 5% – next week.

The Bank said there had also been a bigger-than-expected fall in new mortgages over the past three months.

The Bank of England’s quarterly credit conditions survey confirmed that lending by commercial banks has already fallen steeply since the start of the credit crunch.

In its report, the Bank asked lenders about the past three months – and their predictions for the final three months of 2008.

Cautious approach

Commercial banks told Britain’s central bank they were expecting to further tighten the availability of credit for companies and home-buyers during the final three months of the year.

In its report, the Bank said: “Lenders reported that the changing economic outlook, their expectations for the housing market, and changes in their appetite for risk had contributed to the decline in credit availability.”

George Buckley, an economist at Deutsche Bank, said: “This is precisely what we would have expected, it reinforces the fact the housing market still has a lot further to weaken yet.”

Earlier on Thursday, the Nationwide, one of Britain’s biggest mortgage lenders, reported a 1.7% fall in house prices in September, taking the annual rate of decline to 12.4% – the sharpest drop in 17 years.

Central banks have been pumping cash into the money markets to try to encourage banks to lend to each other – and so make it easier for them to lend to consumers and companies.

However, interbank lending rates have remained stubbornly high amid bank failures and falling asset prices.

The Bank of England carried out its survey of commercial banks between 26 August and 17 September.

News reported by The BBC

Central banks are taking co-ordinated action to lend extra cash to banks.
The Bank of England, US Federal Reserve, European Central Bank and Swiss National Bank will be involved.

The Bank of England will be lending an extra $30bn (£16bn) for a one week period, $10bn overnight and $40bn in three-month loans.

The Bank of England had been holding auctions of three-month loans once a month but will be holding them once a week for at least the next three weeks.

The central banks said that the extra cash was intended to help banks as they approach the end of the financial third quarter next week.

“Bottom line of all this is that the Age of Anxiety is far from over” Robert Peston, Business editor, BBC News

Banks have been turning to their central banks for funding because they have been struggling to borrow from each other as they would usually do.

One of the reasons they have been reluctant to lend to each other has been the fear of further bank failures and the news that Washington Mutual has become the biggest US bank to fail will do nothing to help that situation.

Banks will be able to use their mortgage books as security on the loans.

Separately, the Bank of Japan injected cash into the Tokyo money markets on Friday for the eighth trading day in a row.

It injected 1.5 trillion yen ($14bn; £8bn) into the market, although it later removed 300bn yen of that.

News reported by The BBC

Merrill Lynch, Goldman Sachs and Deutsche Bank are the latest banks to reach a settlement with US regulators over the sale of risky securities.

The banks have agreed to buy back billions of dollars in auction-rate securities and pay fines, after allegations that they misled investors.

Of the three firms Merrill Lynch is to pay the highest fine of $125m (£66m).

Other banks that have reached similar settlements with regulators include Morgan Stanley and JP Morgan Chase.

New York Attorney General Andrew Cuomo has been leading the probe, with the support of federal and state regulators.

The banks have been accused of marketing the financial products, called auction-rate securities, as much safer than they were.

Investors were told that auction-rate securities would return more than money market investments and be easy to sell.

FINES PAID SO FAR
UBS: $150m
Merrill Lynch: $125m
Citigroup: $100m
Morgan Stanley: $35m
JP Morgan: $25m
Goldman Sachs: $22.5m
Deutsche Bank: $15m

Under the latest deal with Mr Cuomo, Merrill Lynch said it would repurchase up to $12bn in auction rate securities as well as pay the $125m fine.

Deutsche Bank meanwhile has a $15m fine to pay and must buy back some $1bn of the investments.

Goldman Sachs has a $22.5m fine and has agreed to buy back $1.5bn in securities.

Earlier this year, Citigroup and Swiss banking giant UBS reached a settlement to buy back $26bn of the securities.

Following the latest settlement Mr Cuomo said: “This has been a great day of progress,” adding that a number of banks were still being investigated.

News reported by The BBC

Police are warning that a way has been found to hack into chip-and-pin readers to steal customers’ details.

Specialist police raided a counterfeit card factory in Birmingham on Tuesday and found equipment needed to steal details and make fake cards.

Chip-and-pin technology has regularly been hailed as a success in reducing card fraud on the UK High Street.

Two people have been charged with conspiracy to defraud after being arrested in connection with the raid.

Clone

Speaking in general, Det Ch Insp John Folan, of the Dedicated Cheque and Plastic Crime Unit, said that chip-and-pin terminals that have been hacked into have been found in 30 shops in the UK.

“Customers should be assured that UK retailers always take the protection of cardholder data seriously” Jane Milne, British Retail Consortium

He told the BBC that it was “a game of cat and mouse” between police and fraudsters, but one that was being tackled early by the authorities.

Thieves can steal the card readers and install a hidden device which logs information when a customer enters their pin number.

The reader is then put back in a shop, supermarket or petrol station, sometimes with the collusion of a member of staff.

Fraudsters can then use the information to create fake cards to withdraw cash in countries where chip-and-pin has yet to be introduced.

Apacs, the UK Payments Association, said that over the past three years losses on face-to-face transactions on the UK High Street fell from £218.8m in 2004 to £73m last year owing to the introduction of chip-and-pin.

But fraud overseas increased by 77% last year to £208m, 39% of total UK card fraud. Banks throughout Europe have agreed to bring in chip-and-pin cards by 2010.

Police want to hear from any retailer who has had chip-and-pin readers stolen or believe their machines have been tampered with.

Liability

“Customers should be assured that UK retailers always take the protection of cardholder data seriously and are continuing to invest millions of pounds to enhance existing security measures,” said Jane Milne of the British Retail Consortium.

Apacs says that chip-and-pin remains the safest method of payment for goods and services but was never claimed to be foolproof. The Banking Code should ensure that any victims are refunded for any losses.

Banks usually refund money stolen from a victim’s account by fraudsters, but there is a question of liability if customers have given away their pin number.

Security expert, Andrew Goodwill, from the Third Man group, said this was the first evidence of a breach of the chip-and-pin system, with the encryption of the chip having been broken.

An Apacs spokesman said that inquiries were ongoing to establish how the hidden devices logged pin numbers.

In the Birmingham raid, police discovered chip-and-pin terminals, card account numbers, a card writer and computer software.

Police said that these details could be used to create fake cards “on a massive scale”.

News reported by The BBC