/ 17 October 2008

Finance fallout brings banking backlash

Fallout from the global financial crisis grew in the real economy on Friday with job losses and a backlash against banking chiefs as shares ended a crazy week with a new roller-coaster ride.

Shares in Europe and Asia initially followed New York and Tokyo higher, but fell again as hopes for a new start were dented by a major French bank’s admission that it had lost $800-million in a derivatives trading ”incident” during the market turmoil.

And ahead of new international talks on the crisis, Ukraine said it was negotiating for an emergency loan with the International Monetary Fund while Argentina announced it had struck a deal with three foreign banks to renegotiate annual payments on part of its $150-billion sovereign debt mountain.

The impact of the crisis spread further with more companies around the world blaming major job losses on the financial turmoil, which saw bank lending freeze up in a crisis of confidence over ”toxic” United States mortgage debt.

Chinese toy maker Smart Union, which was heavily reliant on US brands such as Mattel and Disney, has gone bust due to the financial crisis, leaving up to 7 000 people jobless.

The firm closed its factories in southern China this week, leaving unpaid workers stranded outside the plants and leading to government concerns about protests.

Swedish plane maker Saab said it would cut 500 jobs over two years after announcing heavy losses. Unemployment has grown across Europe with key sectors such as car-makers particularly badly hit as the downturn gathers pace. Many governments and experts have warned of a tough recession looming.

The German Lower House of Parliament approved a government €480-billion rescue package for the financial sector but 99 deputies voted against it, and Greens parliamentary chief Renate Kuenast said the proposals were a blank cheque for banks who could not be held accountable by taxpayers.

‘Incident’
The finance industry’s reputation took a new blow as France’s Caisse d’Epargne mutual bank said it had lost about €600-million in a trading ”incident”.

”Because of the extreme volatility in the markets and the stock-market crash of the week of October 6, the Caisse d’Epargne group underwent a major incident in the derivatives market,” the statement said.

A company official, speaking on condition of anonymity, said that a finance director from the group had been sacked and six members of the team that made the losing trades had been sanctioned.

The bank, which is due to merge with Banque Populaire, insisted the loss did not affect its stability.

Josef Ackermann, head of Deutsche Bank, Germany’s biggest bank, said he would give up his annual bonus of several million euros to show solidarity with staff. The Swiss national told Bild am Sonntag newspaper he wanted to show a ”personal sign of solidarity”, which would see him do without ”a few million” euros in pay.

Swiss newspapers angrily called on former top managers of banking giant UBS to return their bonuses after the bank had to be rescued by the state.

”Mr Ospel, pay back your bonus! Now! Immediately!” screamed the front page of tabloid Blick, referring to former UBS chairperson Marcel Ospel, who was forced to resign this year after the bank incurred billions in losses due to the US subprime mortgage crisis.

Hedge funds
French Finance Minister Christine Lagarde warned, meanwhile, that hedge funds could be the next victims of the crisis.

”Initially everybody thought the hedge-fund sector would be the first one to actually cause the collapse,” she told Britain’s Daily Telegraph newspaper.

”They are vastly unregulated, they have been operating at the fringes, at the margin, and we need to be careful that there is no contamination effect,” she was quoted as saying.

Despite the swirling crisis, share markets in London, Frankfurt and Paris initially put on about 4% after Tokyo closed 2,8% higher and New York put on 4,7%, clawing back some of the huge losses suffered this week. But before midday most European markets had fallen back again.

Tokyo’s Nikkei stock index actually finished a volatile week — in which it soared a record 14,15% on Tuesday and fell more than 11% on Thursday — 5,04% higher.

”We are exhausted with the recent violent swings. Honestly, I want to take a little break,” said Masatoshi Sato, a broker at Mizuho Investors Securities. — Sapa-AFP