World's biggest bank in crisis meeting
Saturday November 3, 2007
Fears of more turmoil hitting global stock markets grew last night after it emerged that Citigroup, the world’s biggest bank, has called an emergency board meeting for this weekend amid fears of escalating bad debts.
Citigroup is seen as a bellwether for the health of the financial system but has been rocked in recent days over concerns that its exposure to America’s sub-prime mortgage crisis is bigger than previously thought. News of the board meeting came after the US stock market closed so investors could not react immediately.
The emergency at Citigroup follows the run on the British bank Northern Rock which fell victim to the global credit crunch in September.
Just over a week ago, the Bank of England warned that the crunch was far from over and that the UK stock market was "particularly vulnerable" to a downturn.
Citigroup, which globally has more than a billion customers, has operated in the UK since 1902 and employs more than 12,000 people here.
As well as banking, in the UK it also provides a range of commercial investment services to corporate, financial institutions and public sector clients.
There were concerns in New York that the Citigroup board meeting had been called to discuss the possibility of the bank writing off an increasing amount of bad debt. This could seriously hit its profits.
Citigroup’s shares have already slumped 25 per cent over the past three weeks after the bank wrote off $5·9?billion (£2·8?billion) worth of bad debts.
Much of this originally arose in the US sub-prime mortgage market, which is currently in crisis as a large number of borrowers with poor credit histories have defaulted on their repayments.
Charles Prince, Citigroup’s chairman and chief executive, has come under mounting scrutiny over the bank’s performance and will come under pressure to resign if the bank is forced to write off more bad debt.
It follows the resignation on Wednesday of Stan O'Neal, chairman and chief executive of Merrill Lynch, after the investment bank wrote-down $7.9bn in sub-prime exposure in the third quarter.
Markets will be concerned that Citigroup’s growing problems will spread into the economy at large as it, and other large banks, curtail lending which could prompt a slowdown in activity.
British banks are also under pressure and the three leading institutions have seen their share price value plunge by almost £14? billion I two days.
Barclays’ market value has dropped by a total of 11 per cent amid rumours that it had approached the Bank of England for an emergency loan.
Royal Bank of Scotland shares fell by eight per cent over the two days while those of HSBC, Britain’s biggest bank, dropped 4·7 per cent.
Against this fevered background, it emerged that Gordon Brown risks sidelining his Chancellor, Alistair Darling, by using his former Treasury "fixer" to help resolve key financial issues.
Shriti Vadera, a former adviser to Mr Brown who was ennobled in the summer, was allegedly involved in discussions with Lloyds TSB about a rescue deal for crisis-hit Northern Rock, The Daily Telegraph has learned.
Baroness Vadera, now international development minister, is also said to be involved in discussions to water down Mr Darling’s proposals for reforming capital gains tax.
Lady Vadera was infamously involved in the government’s disastrous renationalisation of Railtrack in 2001.
There is said to be a history of antagonism between her and Mr Darling. George Osborne, the shadow chancellor said last night: "If these revelations are true, then it seriously undermines Alistair Darling’s credibility.
"If the Prime Minister does not trust his own Chancellor to run the economy in a crisis, why should the country trust him?"
It also emerged that Northern Rock has borrowed £23?billion from the Bank of England, equivalent to about £1,000 for every British family, after no rescue emerged.
Lord Oakeshott, the Liberal Democrat Treasury spokesman and a City fund manager, said: "Alarm bells are ringing. Until the Government clears the failed board of management out and allows accountants to go through the books there must be very serious concerns."
Before the Northern Rock crisis became public, it is understood that the Government held talks with Eric Daniels, the chief executive of Lloyds TSB, about a possible takeover.
Lloyds TSB is being advised by UBS, the investment bank in which Lady Vadera was a senior executive before joining the Treasury.
Lloyds TSB is chaired by Sir Victor Blank, the former head of Trinity Mirror newspapers who is regarded as a close friend of Gordon Brown.
Lord Leitch, a Labour peer who has carried out several government reviews for Mr Brown, is also on the board.
One well-placed source said: "It was thought rather odd that a junior minister in another department was dealing with the worst banking crisis in a generation rather than the Chancellor."
Another banking source said: "I am told there is a lot of frustration at Number 10 and among senior civil servants with the Treasury and the way it is letting the Northern Rock situation drift. Nick Macpherson [the permanent secretary at the Treasury] is under particular pressure."
The Tories have asked parliamentary questions demanding that the Government reveal details about Lady Vadera’s involvement.
Shahid Malik, her boss at the Department for International Development has blocked their requests saying: "Ministers and senior officials meet a range of individuals and organisations to discuss policy and delivery issues. As was the case with the previous administration, the Government does not provide details of all such meetings."
Lloyds TSB declined to comment but a Treasury spokesman said: "No information on any proposed sale of Northern Rock has been provided to Baroness Vadera, nor have there been any meetings whatsoever between the Treasury and Baroness Vadera to discuss Northern Rock.
"Furthermore, it is incorrect to suggest that Baroness Vadera has held talks with Lloyds TSB, UBS or anyone else in the City on a potential takeover of Northern Rock. Tax policy is a matter for the Chancellor and decisions are made as part of the Budget process. Shriti Vadera has not been involved in discussions on capital gains tax."
Lady Vadera, nicknamed Shrieky within Whitehall, was reportedly blocked by Sir Gus O’Donnell, the head of the civil service, from taking a position at Downing Street when Mr Brown became Prime Minister.
However, she remains a central figure in Mr Brown’s inner circle and was one of his few trusted advisers at the Treasury. Whitehall sources said that she remains a significant player in Downing Street.
Saturday November 3, 2007
Fears of more turmoil hitting global stock markets grew last night after it emerged that Citigroup, the world’s biggest bank, has called an emergency board meeting for this weekend amid fears of escalating bad debts.
Citigroup is seen as a bellwether for the health of the financial system but has been rocked in recent days over concerns that its exposure to America’s sub-prime mortgage crisis is bigger than previously thought. News of the board meeting came after the US stock market closed so investors could not react immediately.
The emergency at Citigroup follows the run on the British bank Northern Rock which fell victim to the global credit crunch in September.
Just over a week ago, the Bank of England warned that the crunch was far from over and that the UK stock market was "particularly vulnerable" to a downturn.
Citigroup, which globally has more than a billion customers, has operated in the UK since 1902 and employs more than 12,000 people here.
As well as banking, in the UK it also provides a range of commercial investment services to corporate, financial institutions and public sector clients.
There were concerns in New York that the Citigroup board meeting had been called to discuss the possibility of the bank writing off an increasing amount of bad debt. This could seriously hit its profits.
Citigroup’s shares have already slumped 25 per cent over the past three weeks after the bank wrote off $5·9?billion (£2·8?billion) worth of bad debts.
Much of this originally arose in the US sub-prime mortgage market, which is currently in crisis as a large number of borrowers with poor credit histories have defaulted on their repayments.
Charles Prince, Citigroup’s chairman and chief executive, has come under mounting scrutiny over the bank’s performance and will come under pressure to resign if the bank is forced to write off more bad debt.
It follows the resignation on Wednesday of Stan O'Neal, chairman and chief executive of Merrill Lynch, after the investment bank wrote-down $7.9bn in sub-prime exposure in the third quarter.
Markets will be concerned that Citigroup’s growing problems will spread into the economy at large as it, and other large banks, curtail lending which could prompt a slowdown in activity.
British banks are also under pressure and the three leading institutions have seen their share price value plunge by almost £14? billion I two days.
Barclays’ market value has dropped by a total of 11 per cent amid rumours that it had approached the Bank of England for an emergency loan.
Royal Bank of Scotland shares fell by eight per cent over the two days while those of HSBC, Britain’s biggest bank, dropped 4·7 per cent.
Against this fevered background, it emerged that Gordon Brown risks sidelining his Chancellor, Alistair Darling, by using his former Treasury "fixer" to help resolve key financial issues.
Shriti Vadera, a former adviser to Mr Brown who was ennobled in the summer, was allegedly involved in discussions with Lloyds TSB about a rescue deal for crisis-hit Northern Rock, The Daily Telegraph has learned.
Baroness Vadera, now international development minister, is also said to be involved in discussions to water down Mr Darling’s proposals for reforming capital gains tax.
Lady Vadera was infamously involved in the government’s disastrous renationalisation of Railtrack in 2001.
There is said to be a history of antagonism between her and Mr Darling. George Osborne, the shadow chancellor said last night: "If these revelations are true, then it seriously undermines Alistair Darling’s credibility.
"If the Prime Minister does not trust his own Chancellor to run the economy in a crisis, why should the country trust him?"
It also emerged that Northern Rock has borrowed £23?billion from the Bank of England, equivalent to about £1,000 for every British family, after no rescue emerged.
Lord Oakeshott, the Liberal Democrat Treasury spokesman and a City fund manager, said: "Alarm bells are ringing. Until the Government clears the failed board of management out and allows accountants to go through the books there must be very serious concerns."
Before the Northern Rock crisis became public, it is understood that the Government held talks with Eric Daniels, the chief executive of Lloyds TSB, about a possible takeover.
Lloyds TSB is being advised by UBS, the investment bank in which Lady Vadera was a senior executive before joining the Treasury.
Lloyds TSB is chaired by Sir Victor Blank, the former head of Trinity Mirror newspapers who is regarded as a close friend of Gordon Brown.
Lord Leitch, a Labour peer who has carried out several government reviews for Mr Brown, is also on the board.
One well-placed source said: "It was thought rather odd that a junior minister in another department was dealing with the worst banking crisis in a generation rather than the Chancellor."
Another banking source said: "I am told there is a lot of frustration at Number 10 and among senior civil servants with the Treasury and the way it is letting the Northern Rock situation drift. Nick Macpherson [the permanent secretary at the Treasury] is under particular pressure."
The Tories have asked parliamentary questions demanding that the Government reveal details about Lady Vadera’s involvement.
Shahid Malik, her boss at the Department for International Development has blocked their requests saying: "Ministers and senior officials meet a range of individuals and organisations to discuss policy and delivery issues. As was the case with the previous administration, the Government does not provide details of all such meetings."
Lloyds TSB declined to comment but a Treasury spokesman said: "No information on any proposed sale of Northern Rock has been provided to Baroness Vadera, nor have there been any meetings whatsoever between the Treasury and Baroness Vadera to discuss Northern Rock.
"Furthermore, it is incorrect to suggest that Baroness Vadera has held talks with Lloyds TSB, UBS or anyone else in the City on a potential takeover of Northern Rock. Tax policy is a matter for the Chancellor and decisions are made as part of the Budget process. Shriti Vadera has not been involved in discussions on capital gains tax."
Lady Vadera, nicknamed Shrieky within Whitehall, was reportedly blocked by Sir Gus O’Donnell, the head of the civil service, from taking a position at Downing Street when Mr Brown became Prime Minister.
However, she remains a central figure in Mr Brown’s inner circle and was one of his few trusted advisers at the Treasury. Whitehall sources said that she remains a significant player in Downing Street.
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