Sunday, November 9, 2008

Banks finally shamed into 1.5 per cent rate cuts

BRITAIN'S banks bowed to huge public and political pressure today to slash mortgage rates for millions.

After a tense meeting with Chancellor Alistair Darling, the high street's leading names agreed to pass on "all, or most" of the Bank of England's shock 1.5 per cent base rate cut.

Treasury sources said that the bosses from Royal Bank of Scotland, Barclays, LloydsTSB, HBOS, HSBC, Nationwide and Standard Chartered all caved in after being read the riot act by Mr Darling over their failure to respond swiftly to help hard-pressed homeowners.

Crucially, the move came as the three-month inter-bank lending rate, or Libor, fell by more than one per cent, from 5.561 to 4.496 per cent.

Until now, LloydsTSB and Abbey were the only lenders to drop their standard variable rates following the Bank of England's move yesterday to reduce the base rate to three per cent, the lowest in 53 years.

However, hundreds of thousands of people with tracker mortgages were warned today they will not benefit from any future rate reductions. Lenders can now use small-print clauses in contracts to stop passing on cuts.

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IMF consortium 'to wrap up £3.8bn rescue deal for Iceland

Iceland is to get its $6 billion rescue package from an International Monetary Fund-led consortium, according to Poland, one of the contributors.

The group includes the UK, Scandinavian countries, the Netherlands, Poland as well as the Faroe Islands.

The UK has already come up with £800 million to compensate British savers who lost everything when Icelandic bank Icesave failed.

The IMF executive board has postponed until Monday a meeting to sign off on its $2.1 billion contribution in the form of a loan to Iceland. But Poland says the deal has effectively been approved.

The global financial crisis has led to the collapse of three of Iceland's top banks, with government support for them alone to cost as much as 1.1 trillion Iceland crowns (£5.4 billion).

The collapses have led to chaos in Iceland, where the central bank has interest rates at 18% and warns that inflation could soar to 20% next year.

Iceland's economy is set to shrink 8.3% next year, from July's estimate of only a 2% contraction.

The country's three main banks, Kaupthing, Landsbanki Islands and Glitnir Bank have total debt worth $61 billion, equivalent to about 12 times the country's GDP. About 230,000 British depositors with Landsbanki's Icesave will receive compensation to replace all of their lost savings.

The IMF yesterday approved a 17-month standby loan of $15.7 billion for Hungary, a country hard hit by the financial crisis. That comes on top of a $16.4 billion loan to Ukraine.

The fund has released $6.3 billion to Hungary immediately, which says it will start injecting the money into its banking system.

"Hungary was hard hit by the global deleveraging," the IMF said, adding that it was "among the first emerging market countries to suffer from the fallout of the current global financial crisis" because of its very high levels of debt.

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