Shares in Bradford & Bingley (B&B) climbed strongly in early trading on Monday, amid reports that it could be the next bank in line for a takeover.

Several reports suggested that the Financial Services Authority (FSA) has been holding talks with potential buyers, should B&B hit difficulties.

However, The Times said there was no firm interest so far, despite the overtures of the City watchdog.

The HBOS takeover by Lloyds TSB was given FSA and Treasury encouragement.

B&B shares were up as much as 10%, but ended the day 1.7% higher at 28.25 pence.

Royal Bank of Scotland shares were also up- which analysts said was on the back of plans for the US Treasury to create a ‘super-bank’ to buy mortgage-related debts from financial institutions.

Banks eligible to dump their toxic investments into this Treasury-backed bank would include RBS, which has a big retail business in the US.

“The absence of any such bidders so far adds to the uncertainty about B&B’s future” Sandy Chen Analyst, Panmure Gordon

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‘Bad sign’

According to the Sunday Telegraph, the FSA has been in contact with Abbey’s Spanish owner Santander, which recently bought Alliance & Leicester.

And the regulator has also been in touch with Dutch banking group ING and National Australia Bank – owner of Yorkshire and Clydesdale banks – to gauge interest, the paper said.

But the lack of firm interest was a “bad sign” said Panmure Gordon banking analyst Sandy Chen.

He warned that uncertainty could even lead to B&B customers taking their money out of the bank.

“The absence of any such bidders so far adds to the uncertainty about B&B’s future, in our view,” Mr Chen added

“Our concern is that significant retail deposit outflows may occur, forcing B&B to rely even more heavily on expensive wholesale funding.”

B&B has been badly hit by the credit crisis and a sharp downturn in the buy-to-let market.

It reported a loss of £26.7m for the six months to the end of June, against a £180.4m profit last year.

This included a sharp rise in credit impairment charges for the six months to £74.6m, up from £5.3m in the same period last year.

B&B recently completed a £400m share rights issue in order to improve its balance sheet.

News reported by The BBC

Russia’s second largest gold miner has seen first half profits fall by a third as higher costs offset the strong price of the precious metal.

UK-listed Peter Hambro posted sales of $146.4m (£79.3m) in the six months to the end of June, up 57% on a year ago.

But operating expenses rose 82% as labour costs at its flagship Pokrovskiy mine jumped 32%, diesel costs added 41% and electricity bills rose by 14%.

Peter Hambro said it was on track to meet its 2008 production targets.

The firm said it had sold its gold for an average of $901 per ounce over the period – up 38% from the year before.

The metal spiked at about $980 in July but then fell in line with other commodities.

However last week gold rallied, as investors sought safer investments amid market turbulence.

News reported by The BBC

Savers putting their money in funds investing in UK stocks and shares would have made more money since 2000 by putting it in savings accounts instead.

If £1,000 was invested at the start of the decade, it would now be worth £1,094 in an average UK unit trust but £1,358 in a typical savings account.

The research by Thomson-Reuters Lipper, commissioned by the BBC, questions the returns from long-term investments.

But industry experts say that timing was key to how much money can be made.

The same calculations, but up to July 2007, would have seen shares perform comfortably ahead of cash, according to Jane Lowe, director of markets at the Investment Management Association (IMA).

Returns

The exclusive research for the BBC found that £1,000 invested in a UK equity income fund would also have made less than in an instant savings account – now being worth £1,302.

“It [stock market investment] is a longer term question of when you are putting your money in and when you are taking money out” Jane Lowe, IMA

But if anyone made the unusual decision at the time of investing in a commodities or natural resources fund eight years ago, their £1,000 would now be worth £3,260.

The fund management industry often suggested that over the long-term shares would outperform a typical savings account.

Ms Lowe said that stocks and shares were not an investment for those wanting to make a “quick buck”.

“It is a longer term question of when you are putting your money in and when you are taking money out,” she said.

She said it was difficult to predict the peaks and troughs of the market, but over the long-term this form of investment was still a better bet than savings accounts.

She suggested that people drip-feed their investments into funds to flatten out the cycle.

William Claxton Smith, of Insight Investments, also pointed out that over the last eight years interest rates have been relatively high in the UK, leading to better returns from savings accounts.

News reported by The BBC

Shares in American International Group (AIG), the world’s largest insurance firm have fallen 18% to $23.84, their biggest fall in more than two decades.

It had reported another quarterly loss as profits were wiped out by writedowns on mortgage-related investments.

In the April to June period it incurred a net loss of $5.36bn (£2.75bn) against a profit of $4.28bn a year ago.

AIG sacked chief executive Martin Sullivan in June and replaced him with ex-Citigroup banker Robert Willumstad.

Mr Willumstad blamed the poor housing and credit markets for AIG’s troubles.

‘Comprehensive review’

One of the main factors behind the loss was a pre-tax charge of $5.56bn that AIG took on the value of contracts sold to protect bond investors against losses.

TOP WRITEDOWNS

Billions of dollars

Citigroup 46.40
Merrill Lynch 36.80
UBS 36.70
AIG 20.23
HSBC 18.70
RBS 16.50
IKB 14.73
Bank of America 14.60
Morgan Stanley 11.70
Deutsche Bank 11.40
Ambac 9.22
Barclays 9.20
Wachovia 8.90
MBIA 8.41
Credit Suisse 8.13
Wasington Mutual 8.10
HBOS 7.50
Source: Reuters

It also took a $6.08bn hit on its portfolio of residential mortgage-backed securities due to “the severe, rapid declines” in their market value.

Mr Willumstad said: “We are conducting a comprehensive review of all AIG’s businesses with the objectives of improving results, reducing AIG’s risk profile and protecting our capital base.”

He said a progress report would be released in September.

AIG shares dropped almost 8% in after-hours trade in New York on Wednesday, suggesting they could fall when the market opens on Thursday. AIG’s share price has fallen by half since the start of the year.

But analysts considered that AIG’s prospects could improve as market conditions picked up.

“It looks like the new CEO took what I call a kitchen sink quarter,” Keith Wirtz, president and chief investment officer of Fifth Third Asset Management said, suggesting he was aiming to clear all the bad news at once.

News reported by The BBC

Stamp seller Stanley Gibbons has seen a rise in profits saying investors are steering away from erratic financial markets and seeking other investments.

Pre-tax profits for the six months to June rose by 6% to £1.8m, on sales that jumped by 12% to £9.8m.

And it said online transactions were gaining popularity, with about £2.4m of sales through its websites.

Stanley Gibbons sells rare stamps such as Penny Blacks and the autographs of celebrities and historical figures.

‘All-consuming’

Chairman Martin Bralsford said rare stamps and autographs were a good means of diversification and were also a “safe haven” in volatile economic times, helping to hedge against inflation.

“Collecting is an all-consuming passion. That is why the prices of rare stamps and historical signatures show no correlation with the stock market, property prices and other traditional forms of investment,” he said.

Stanley Gibbons said it would allocate “significant resources” to invest in longer-term opportunities.

The company was founded in 1856 and the stamp business received a Royal warrant in 1914.

It later established an auction house and expanded its business to include other rare collectors’ items.

News reported by The BBC

Why are we asking this now?

It has emerged that Morgan Stanley, one of two huge investment banks that has been helping HBOS to raise £4bn from shareholders, was at the same time selling the company’s shares short – betting that the Halifax Bank of Scotland group would fall in value. Morgan Stanley has not broken the law, or breached any City rules, but its dealings have certainly raised eyebrows. And this is the latest in a series of controversies in recent months relating to short selling.

What is short selling?

It is a way of profiting from a fall in a company’s share price. Most stock market investors buy shares in the hope and expectation that their value will increase – “going long” in the jargon of the City – but it is also possible to make money when the opposite happens. Shorting means selling a share that you don’t own in order to buy it back once it has fallen in price, netting a profit in the process.

How can you sell something you don’t own?

In a conventional short sale, the investor – usually a hedge fund or large investment bank – takes the view that shares in a particular company are set for a fall. The investor then borrows the shares from someone who does own them – most often a large pension fund or insurance company – and sells them in the market. Once the shares have fallen in value, the investor buys them back at the lower price and returns them to the lender.

If all goes according to plan, the investor is paying less to buy back the shares than it received for selling them. There are some costs involved, notably that the lender charges a fee for loaning out its shares, but in an ideal world the shorter still makes a tidy profit.

There’s a variation on this theme, known as “naked short selling” – a form of shorting where the investor doesn’t even bother to borrow the shares it is betting against. This is possible because share deals are often not settled immediately. The seller promises to deliver the stock after a short delay – say three days. If a short seller buys the stock back before it has to make good on the original delivery, no shares need actually change hands.

So what’s all the controversy?

The biggest concern is that short selling has often been associated with market abuse. The clearest victim of such abuse was HBOS itself, earlier this year. Over the course of just an hour one day in March, its shares plunged when rumours swept the stock market that the bank had financial problems similar to those that caused the collapse of Northern Rock. The rumours were totally false and the share price recovered later in the day, but not before investors with short positions in HBOS shares had made a handsome gain. City regulators are still trying to discover who started the malicious gossip about HBOS, but there is widespread suspicion that the rumours were planted by a hedge fund keen to make a fast buck. Such behaviour is illegal, but also very difficult to investigate.

What about Morgan Stanley?

The ethics of Morgan Stanley’s shorting of HBOS is much less clear-cut. The investment bank knew that if HBOS’s fund-raising was not a success, it would be held to a promise to buy the bank’s shares at a higher price than their prevailing market value, booking a nasty loss. Selling the shares short was one way of making some of these losses back.

Morgan Stanley argues that its shorting of HBOS was sensible risk management, conducted by a separate department to the part of the bank handling the fund-raising. But HBOS must wonder why a bank to which it is paying considerable sums for work on its fund-raising has been simultaneously making money from a fall in its value. It’s also clear that by Friday, when Morgan Stanley began shorting HBOS shares in a major way, it knew that the fund-raising was going to be a serious flop.

Any other problems with this practice?

Critics also have little time for pension funds and insurance companies that facilitate the process by lending out their shares. These large investors buy shares on behalf of their clients – you and me – and presumably hope they will rise in value. So it seems bizarre that they’re prepared to lend stock to people who want to make money from falling share prices.

The pension funds’ argument is that they buy shares with a long-term view. The sort of short-term ups and downs caused by short sellers does not affect this, and besides, they say, they make money for clients from stock lending. Still, in the worst cases, short selling can totally destabilise a company, damaging its prospects for years to come.

What sort of money is involved?

The hedge funds and investment banks that dabble in short selling do so with astronomical amounts of money. Analysis conducted by The Independent shows that hedge funds have made more than £1bn betting on a fall in HBOS’s share price in the past two and a half months. One single hedge fund is thought to have made £1bn betting on the collapse of Northern Rock last year.

Remember that stock-market investment is a zero-sum game. For every pound of profit made by a short seller, there’s an equal loss for shareholders who have gone long.

So what can be done?

Regulators around the world have already attempted to police short selling more closely. The Securities and Exchange Commission in the US, for example, has prosecuted traders for spreading false rumours about companies they’ve sold short. The Financial Services Authority in the UK still hopes to bring similar charges against the HBOS raiders.

New rules have also been introduced. Naked short selling is illegal in the US in most circumstances. In the UK, the FSA announced earlier this year that anyone shorting the shares of a company holding a rights issue to raise new funds would have to disclose their trading positions once they exceeded quite low thresholds. It has promised additional regulation if these rules do not prove sufficient to prevent market abuse.

Pressure has also been brought to bear on stock lenders. Many pension funds now operate on the basis that they will not loan out any of their shares. But the fact remains that short selling, when done within in the law, is a legitimate investment practice and an outright ban would be a draconian intervention. Buying shares in a company is, in essence, a simple gamble that the price of the stock will rise. Why should investors not also be allowed to bet on a fall in share prices?

Is short selling just another example of City excess?

Yes…

* Making money as companies lose their value is simply profiting from other people’s misery

* Short selling is very often associated with murky – and even illegal – market practices

* Hedge funds, often owned by a small group of traders, make massive profits from driving down share prices

No…

* Betting on a share-price fall is no less legitimate an investment than gambling that the market will rise

* City regulators already police the financial markets to curb illegal practices and catch those who flout the rules

* Some instances of short selling are just a way of reducing the risk of very large “long” investments

News reported by The Independent

The US government has announced sweeping measures to shore up the nation’s two largest mortgage finance companies Freddie Mac and Fannie Mae.

The plan calls on Congress to expand the companies’ current line of credit and allow the Treasury to buy equity capital in the companies if needed.

Freddie Mac and Fannie Mae guarantee almost half of all US home loans.

Their share prices fell nearly 50% last week amid fears that they might have trouble raising money.

Announcing that new credit lines would be sought from Congress, Treasury Secretary Henry Paulson said: “Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies.”

He added that their “support for the housing market is particularly important as we work through the current housing correction”.

The Federal Reserve also said it would lend to Fannie Mae and Freddie Mac if they need additional funds.

The two firms play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.

As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.

Both firms defended their finances, saying they had enough capital to weather the housing slump.

News reported by BBC

Troubled banking giant Citigroup has sold its German consumer banking business to French bank Credit Mutuel.

The 4.9 billion euro ($7.7bn: £3.9bn) cash deal is part of Citi’s efforts to return to profit after losing more than $40bn on sub-prime related investments.

It wants to sell $400bn worth of assets over the next three years as well as cut 16,000 jobs worldwide.

In May it announced plans to close two UK mortgage businesses which could lead to the loss of 600 jobs.

These were mortgage supplier Future Mortgages and CitiFinancial, a UK personal loans business.

“This is another strategic step in our effort to reorganize Citi, strengthen our balance sheet, and put us squarely on the path to future growth driven by our core businesses,” said Citi chief executive Vikram Pandit.

Citigroup will continue to provide services for business customers in Germany as well as investment banking and financial research.

News reported by BBC

Shares in US mortgage firms Freddie Mac and Fannie Mae dropped by as much as 50% in rollercoaster trading on Friday amid concerns for their future.

Investors are concerned that the government may have to step in to rescue the two firms.

But the US Treasury said it would back them in their current form, helping their shares to recover some ground.

The companies are behind half of all US mortgages and have been hard hit by the slowdown in the US housing market.

The two companies play an important role in the financial markets in providing funding for home loans by buying up mortgages and packaging them as investments.

As mortgage backers, the companies have had to pay out when homeowners have defaulted on their loans.

Both firms defended their finances, saying they had enough capital to weather the housing slump.

‘Important mission’

Shares in the two firms trimmed losses after US Treasury Secretary Henry Paulson signalled he was not on the verge of taking Fannie Mae and Freddie Mac into public hands.

President Bush reflects on tough times for the US economy - “Our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” he said.

President George W Bush was briefed on Fannie Mae and Freddie Mac earlier on Friday.

Mr Bush said Mr Paulson assured him that he and Federal Reserve Chairman Ben Bernanke “will be working this issue very hard”.

After a volatile trading session, Freddie Mac shares closed down 3.1% at $7.75.

The stock had plunged as much as 51% shortly after the market opened and briefly vaulted into positive territory at one point.

Shares of Fannie Mae ended the day down 22.4% at $10.25 after sliding as much as 49% to a 19-year low of $6.68.

US Senator Christopher Dodd said the Federal Reserve was considering allowing Fannie Mae and Freddie Mac to borrow directly from the central bank, which also helped the shares to recover.

Lenders falter

Meanwhile, a California-based mortgage lender IndyMac was taken over by US regulators on Friday.

Earlier this week, the bank said that it would stop most lending, leading depositors to withdraw cash.

The US Office of Thrift Supervision said it had transferred IndyMac’s operations to the Federal Deposit Insurance Corporation after determining that is unlikely to meet its depositors demands.

IndyMac had been struggling to raise funds and stay in business in one of the states worst hit by the US housing market slump.

‘Unthinkable’

There has been a sense of unfolding crisis surrounding the companies this week according to the BBC’s New York business correspondent, Greg Wood.

“Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission” Treasury Secretary Henry Paulson

He added that it would be unthinkable that they could be allowed to fail.

While no longer government owned, Fannie Mae and Freddie Mac are government chartered, leading many to suggest that the Bush administration will be forced to step in.

‘Important mission’

Mr Paulson responded to media reports that the Treasury was planning some kind of government-led rescue.

He said the Treasury was “maintaining a dialogue with regulators and with the companies”.

He stressed that their regulator continued to work with them “as they take the steps necessary to allow them to continue to perform their important public mission”.

Analysts said his comments suggested that there would be no sweeping bail-out of the two firms.

“While Mr Paulson is making supportive comments… there was no suggestion of any imminent bail-out – nor enough specifics to the support they would give,” said Bret Barker, portfolio manager at Metropolitan West Asset Management in Los Angeles.

“The markets were looking for more from Mr Paulson.”

Earlier this week, Freddie Mac and Fannie Mae’s regulator stressed that the firms were “adequately capitalised”.

This sentiment was also echoed by Mr Paulson and Mr Bernanke in testimony to the US Congress on Thursday.

The Office of Federal Housing Enterprise Oversight said they had large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets.

News reported by BBC

NEW YORK (Reuters) – If investors thought Morgan Stanley had turned things around in asset management, a jarring second-quarter loss revealed the investment bank still has a ways to go.

Yet the unit, which has posted two straight quarterly pretax losses totaling $388 million (170 million pounds), has not been able to stop funds flowing from Morgan Stanley and Van Kampen mutual funds. Morgan Stanley co-President James Gorman has vowed to increase the focus on this problem.

“We’re going to turn the Bunsen burner up several degrees,” Gorman, credited with reviving the brokerage arms of Merrill Lynch and Morgan Stanley, said at a recent conference.

Managing mutual funds, hedge funds and real estate investments is a lucrative business on Wall Street, one that can deliver steady returns over time. Yet it’s been a largely untapped opportunity at Morgan Stanley, which had a laggard funds business until John Mack took over as chief executive three years ago.

The firm saw asset growth flat-line after the tech stock bubble burst in 2000. Meanwhile, regulators put a stop to Wall Street brokers promoting in-house funds to clients. Suddenly, funds forced to compete on performance saw customers flee.

Since then, Morgan Stanley (MS.N: Quote, Profile, Research) has stemmed outflows, offered new products and bought stakes in some fast-growing hedge funds. During the second quarter, a net $15.5 billion flowed into the division, the seventh straight quarter of in-flows.

However the retail mutual fund business has continued to struggle. During the latest quarter, about $600 million left Morgan Stanley-branded funds while $2.1 billion flowed out of Van Kampen funds.

“They have made some progress, but they haven’t quite turned things around on the fund flow front,” said Karen Dolan, head of funds analysis at Morningstar.

HEAT IS ON

One man feeling the heat is Stuart Bohart, who in February was named one of three co-heads of investment management and charged with fixing the $550 billion core fund business.

Bohart, a prime brokerage star at Goldman Sachs and Morgan Stanley, told Reuters the bank is making progress boosting returns, defining its fund brands and expanding offerings across asset classes and investment strategy.

“What we were doing in the past wasn’t good enough. We intend to be a much better firm, with much better performance and serve more clients,” Bohart said in an interview. “That requires a willingness to change, to get the right people in and the wrong people out. We’re very serious about it.”

Among other efforts, the bank wants to better define its two retail fund families. The Morgan Stanley brand, better known among institutions and overseas, will offer “edgier” investment strategies, such as long-short and commodity funds.

The $138 billion Van Kampen family, sold through brokers, offers more traditional equity and fixed-income funds.

Yet fund analysts say the mutual fund business is still flawed, hurt by manager turnover and poor performance.

“They have an identity crisis. What is Morgan Stanley, what is Van Kampen and how are we going to position these funds?” Morningstar’s Dolan said. “It seems they are more focused on sales than performance.”

Meanwhile, the division is suffering from decisions made before credit markets locked up. Losses on structured investment vehicles (SIVs) held in the firm’s money market funds, as well as its purchase of Crescent Real Estate last August, fueled a second-quarter loss.

“They made a strategic decision to place money in these SIVs as a reach for yield,” said Portales Partners analyst Charles Peabody, who notes the bank had $3.6 billion of exposure to the illiquid instruments. “This is not the end.”

MORE DEALS AHEAD

Other moves worked out. Stakes in U.K. hedge fund firm Lansdowne Partners and distressed investor Avenue Capital Group and the takeover of FrontPoint Partners helped jump start Morgan’s hedge fund business. Assets at the three firms nearly doubled in 18 months, growing by $20 billion in total.

Bohart said the firm would continue looking for hedge fund stakes and “bolt-on deals,” hiring management teams and developing new funds.

“We continue to look for partnerships where there are unique products we can’t create ourselves,” he said.

The bank also wants to bulk up existing businesses. Bohart says Morgan’s money market funds, currently $125 billion, and fixed-income funds, which manage about $100 billion, are too small.

As to the bigger question of performance, Bohart said in-flows and margins are improving, excluding SIV and real estate losses. Yet he cautioned that the weak returns of prior years cannot be offset overnight.

“In 2007 we made all this money and people said, ‘Gee, it’s fixed,’ but you don’t fix a business in a year,” Bohart said. “We’re not out of the woods yet, but I know they end at some point.”

News reported by Reuters