Bank aiming to boost money supply

The Bank is hoping to get the commercial banks lending again

The Bank of England is seeking approval from the government for a series of measures aimed at increasing the supply of money in the economy.

Technically known as quantitative easing, the aim of the process is to try to increase the amount of funds in the UK banking system.

The hope is that this will make it easier for the commercial banks to start to increase their lending levels.

Analysts said the Bank could start to introduce measures within days.

These are likely to include the purchase of both government and corporate bonds.

The bank's decision to introduce quantitative easing was unanimously agreed by its nine-member Monetary Policy Committee (MPC) at their meeting earlier this month.

The released minutes also showed that the MPC voted 8-1 to cut interest rates to 1% in February from January's 1.5%.

'Great uncertainty'

The Bank hinted that increased quantitative easing was necessary, as cutting rates alone may now not be enough to help the economy out of recession.

WHAT IS QUANTITATIVE EASING? Traditional 'QE' involves buying just government securities, or gilts. However, the MPC will be looking to buy high quality corporate securities as well Stephanie Flanders, BBC economics editor Read Stephanie's blog on 'QE'

"To the extent that further cuts in bank rate could not inject sufficient stimulus, the committee would need to use alternative policy instruments," the minutes said.

"There was a great deal of uncertainty about what would happen to banks' and building societies' ability and willingness to lend at low levels of interest rates."

Its admission comes after a number of business groups, including the Federation of Small Businesses, said the recent rate cuts were not working, as the commercial banks were still reluctant to lend.

"The vote on rates was in line with expectations but the most important aspect of today's minutes was the unanimous vote to write to the Chancellor to seek his consent to implement quantitative easing," said Andrew Goodwin, senior economic advisor to the Ernst & Young Item Club.

"Item believes that it is crucial that the Bank be allowed to swiftly and boldly implement this policy."

'Critical need'

The British Chambers of Commerce (BCC) said the MBC must now be bold.

"There is a critical need for aggressively pursuing quantitative and credit easing," said BCC chief economist David Kern.

"Businesses must be reassured that the MPC and the Bank will move in that direction."

Official data released on Tuesday showed that UK consumer price inflation stood at 3% in January, falling from 3.1% in December, but still above the government's 2% target.

The UK economy contracted by 0.6% between July and September, and by 1.5% from October to December.

Meanwhile, unemployment rose to 1.97 million in the three months to December 2008 - the highest level since 1997.

Lending revival 'unlikely soon'

UK mortgage lending dropped by 30% in 2008, recent figures showed

A "meaningful revival" in mortgage lending is unrealistic in the coming months as home loan values reach their lowest since April 2001, lenders say.

Mortgage lending fell by 8% in January compared with December, down to £12.4bn, according to data from the Council of Mortgage Lenders (CML).

This marked a 52% decline compared to the same month last year.

The CML said that the mortgage market remained "very weak", as home loans remained hard to obtain.

Typically, lending tends to dip slightly from December to January, but the CML said this showed the housing sector was still in a rut.

'No recovery'

"Mortgage lending activity continues to be very weak and while people are searching eagerly for some signs of recovery, it would be unrealistic to expect a meaningful revival in lending in coming months," said Bob Pannell, the CML's head of research.

It is time for the government to get the gloves off and force the banks to lend Mortgage broker Andrew Montlake

Gross lending would be one of the later measures to show any lift in the market, he added.

Analysts said that banks remained reluctant to lend to potential homeowners although, with prices continuing to fall, many people are holding off from entering the market.

The figures led to renewed calls for the government to do more to encourage the banks to lend.

"The January lending figures are a joke. Enough is enough. It is time for the government to get the gloves off and force the banks to lend," said Andrew Montlake, partner at independent mortgage broker Cobalt Capital.

Falling rates

The Bank of England has cut interest rates to just 1% from 5% in October.

This has failed to revive buying and selling houses, despite mortgage costs dropping for many existing owners.

Lenders have increased the level of deposits they demand from borrowers, choking the supply of potential buyers.

The CML has warned that, owing primarily to job losses in a recession, more than 500,000 people were set to fall behind on mortgage repayments this year.

The group has urged people who found themselves in that situation to contact their lender as soon as possible, get some free independent advice, and not to simply send the keys back and walk away.

Homelessness charity Shelter and advice group Citizens Advice said that they were seeing more people with mortgage worries.

"As the credit crunch continues to bite, the reality is that more and more homeowners will struggle to keep up with their mortgage payments this year," said Adam Sampson, chief executive of Shelter.

"We are seeing increasing numbers of people coming to us for help with mortgage problems and we would urge anyone in difficulty not to bury their heads in the sand and to seek advice early to ensure they do not lose their homes."

Bank bail-out 'could send national debt soaring by £1.5trillion'

Office for National Statistics says Lloyds Banking Group and Royal Bank of Scotland should be treated as public companies

The offices of the Lloyds Banking Group in Gresham Street, London. Photograph: Dominic Lipinski/PA

The government's rescue of some of Britain's biggest banks will push up the national debt by as much as £1.5trillion, the Office for National Statistics (ONS) announced this morning.

Alongside a grim assessment of the public finances, the ONS said that Lloyds Banking Group and Royal Bank of Scotland should be treated as public companies as they are now partly under the control of the state.

It said it would take time to assess exactly how much damage this would do to the public sector net debt, but estimated that it would push it up by £1tn-1.5tn. The upper estimate is twice the current national debt, and equivalent to about 100% of GDP.

The ONS said it had taken the decision "based on a judgement that government has the ability to control the respective banks' general corporate policy through the conditions associated with the agreements signed relating to recapitalisation".

The statistics office reported that public net debt had hit a record 47.8% of GDP. The Treasury injected billions of pounds into the banks to save them from collapse. Lloyds, which recently took control of HBOS in a rescue merger, has received £17bn and is 43% owned by the taxpayer.

The government has also taken control of Northern Rock and Bradford & Bingley, and owns more than 70% of RBS.

The figures showed government finances worsened dramatically last month, usually a strong month when City bonuses and corporation tax receipts swell the national purse.

Public sector net borrowing, the government's preferred measure, recorded a surplus of £3.34bn, the lowest January surplus since 1995.

Howard Archer of IHS Global Insight called the January figures "terrible".

"January always sees a surplus on the public finances at is a bumper month for tax receipts. Unfortunately, though, bumper hardly describes the tax receipts for this January as they have been decimated by sharply contracting economic activity, declining profitability, rising unemployment, reduced bonus payments, December's VAT cut and substantially weakened housing market activity and prices," Archer said.

Cricket promoter Allen Stanford linked to drugs investigation

The FBI is investigating Sir Allen Stanford over possible links to a Mexican drugs cartel, according to reports.

Latest twist: Sir Allen Stanford is suspected of laundering money for Gulf cartel Photo: GETTY IMAGES

In a report screened on Wednesday night on ABC News in the US, it was claimed that Sir Allen was suspected of laundering money for the notorious Gulf cartel, and that one of his private jets was detained as part of the investigation last year.

The reports come 36 hours after the Security and Exchanges Commission charged the Texan financier with an alleged $8bn fraud. Sir Allen is still at large having failed to respond to the SEC's charges, and is reported to have tried and failed to charter a jet from Houston to Antigua.

The revelations will heap further embarrassment on the England and Wales Cricket Board, who have suspended all relations with Sir Allen in the wake of the SEC's allegations.

ECB Chairman Giles Clarke is already under pressure to resign having led negotiations with Sir Allen and put his personal stamp on the $1m-a-man match in Antigua.

According to the ABC report, the investigation into Sir Allen's alleged links to drug cartels has been running since last year when the Mexican authorities detained one of Sir Allen's private planes. Authorities say Sir Allen could potentially face criminal charges of money laundering and bribery of foreign officials.

Authorities say the SEC action against Sir Allen on Tuesday may have complicated the federal drug investigation.

The federal investigation, however, did not stop Sir Allen from using corporate money to become a big man at last year's Democratic convention in Denver.

A video posted on the firm's website shows Sir Allen, now sought by US Marshals, being hugged by Speaker of the House Nancy Pelosi and praised by former President Bill Clinton for helping to finance a convention-related forum and party put on by the National Democratic Institute.

FBI agents are investigating U.S. regulators' allegations of a “massive' fraud by Houston billionaire Sir Allen and companies he ran, a person familiar with the case said.

The US Securities and Exchange Commission yesterday sued Sir Allen and two aides, accusing them of orchestrating a fraud involving $8bn placed by investors with Stanford International Bank and two related firms.

No criminal charges have been filed against Sir Allen or his co-defendants in the SEC case: Stanford's Chief Financial Officer James M. Davis and Laura Pendergest-Holt, chief investment officer of the Stanford Financial Group. Federal marshals shut down the Houston office of Stanford Group Co. yesterday.

“The SEC case is a precursor for the criminal investigation and inevitable criminal charges,” said Houston attorney Dan Cogdell, who defended several Enron Corp. executives against federal securities fraud charges.

Based on allegations in the SEC complaint, prosecutors might have grounds to charge some of the defendants with mail fraud, bank fraud, securities fraud, money laundering “and a host of less felonious acts,” he said.

Houston US Attorney's Office spokeswoman Angela Dodge referred questions regarding possible charges against Sir Allen to the SEC. Alfredo Perez, a spokesman for the US Marshal's office in Houston, said he wasn't aware of any arrest warrants for the three executives, which he said wouldn't be issued until any charges are filed.

The SEC said today that Sir Allen's whereabouts aren't known. Federal officials were unable to say if Sir Allen has retained a lawyer or been served with SEC-requested court orders freezing his personal and companies' assets.

Houston criminal defence lawyer Ron Woods, a former US Attorney in Houston and ex-agent of the Federal Bureau of Investigation who helped defend former Enron CEO Jeffrey Skilling, said SEC complaints typically precede criminal charges in white-collar cases.

Latin Americans fret as Stanford crisis spreads

By Ana Isabel Martinez

CARACAS, Feb 18 (Reuters) - Well-off Mexican pensioners joined middle-class Venezuelans in a frantic quest on Wednesday to track down their savings as the fraud scandal enveloping U.S. broker Stanford Group Co spread to Latin America.

Crowds flocked to Stanford offices in Caracas and Mexico City and telephone lines buzzed as harried Stanford staff fielded calls round-the-clock about frozen accounts. Regulatory authorities moved on the bank's assets in Ecuador and Panama and its Colombian brokerage unit halted stock trading. [ID:nN18432144]

"I heard the news and came straight down," said Caracas resident Josefina Moreno, who said her son had about $10,000 invested. "We've had money here for 2 years, and I want it back."

The U.S. Securities and Exchange Commission (SEC) has accused billionaire Allen Stanford, a high profile cricket promoter, and two Stanford executives of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme that stretched around the world from Texas and Antigua. Venezuelan investors alone could have more than $2 billion invested in the scheme. [ID:nN17381625]

One Venezuelan official familiar with some Stanford Group operations said that Venezuelan investors were mainly middle-class or rich individuals with deposits ranging from $10,000 to tens of millions of dollars.

The SEC civil complaint, filed on Tuesday in federal court in Dallas, Texas, named Stanford International Bank (SIB), based in Antigua with 30,000 clients in 131 countries and $8.5 billion in assets, and the group's Houston-based broker-dealer and investment adviser units. In all, the company claims to oversee $50 billion in assets.

Venezuelan investments account for an estimated third of money in SIB, authorities said. [ID:nN18444225]

Stanford Bank Venezuela sought to calm clients on Tuesday by saying its assets were not linked to SIB, and requested a national banking authority representative to sit on its board. [ID:nN18423175]

SHATTERED SHELTERS

In a region all too familiar with financial turmoil, market meltdowns and frozen bank accounts, the Stanford scandal has panicked investors who were already worried about the effects of the global financial crisis on their jobs and savings.

Many wealthy Venezuelans look to overseas accounts as a way of dealing with tough currency controls, soaring inflation and their concerns that socialist President Hugo Chavez is driving the oil rich nation toward Cuba-style communism.

At Stanford's Mexico City office, middle-aged women carrying Louis Vuitton and Carolina Herrera designer purses fiddled with flashy necklaces as they waited alongside Jewish men in skull caps, switching between Spanish and Yiddish as they spoke on their cellphones.

Stanford staff handed out statements that said Stanford accounts had been frozen and provided wire transfer instructions for clients who wanted to liquidate accounts. Some of those waiting in line wept into their cellphones.

Some said they did not know if their money was in Mexico or Houston or Antigua.

"All my capital is in this bank, and I don't know what I am going to do. They won't attend to us. They are locked inside. They don't want to talk to us," said Karyna Kleinckwort, a widow in her mid-thirties.

BAD NEWS AFTER MIDNIGHT, CONFUSION REIGNS

Stanford Fondos has been licensed to operate in Mexico since 2005. The country's bank regulator said that as of Nov. 2008, Stanford had sold investment stocks worth roughly $45 million to some 3,400 clients in Mexico.

"Yesterday, our advisor called us at 1 a.m. and told us he could not believe it," said Maria Esther Azuela, a housewife in her mid-sixties. "This is a big blow."

In Quito, Ecuador, confusion ruled. After the government announced that it was investigating the operations of two local units of Stanford, Anita Cazar rushed to claim her cash. [ID:nN18454119]

"I don't know what is happening," said Cazar, 50, who joined other investors looking for answers. "I saw it in the newspaper, but I want to get my money out just in case."

The Quito stock exchange suspended Stanford's local brokerage house on Wednesday from operating on that exchange for 30 days. [ID:nN18422837]

Santiago Noboa, head regulator for markets in Quito, said the Stanford units managed a fund and investor portfolios totaling about $15 million, but authorities were yet unaware of other instruments the firm might have sold locally.

In Colombia, a local unit of Stanford halted activities on the Colombian stock exchange. Operations there would be limited to fulfilling commitments and returning funds, officials said. [ID:nN18421308]

Peruvian securities regulator Conasev sent an inspection team to Stanford's broker-dealer office in Lima. Conasev said the unit has net assets in Peru of 6.8 million soles ($2.1 million). [ID:nN18426995]

In Panama, bank regulators seized Stanford's local affiliate, Stanford Bank. Nobody lined up outside the branch in Panama City, but a four-page note pinned to the door told of the banking superintendent's decision to take over the bank because of a threat of a run on its assets. [ID:nN17401186]

"Because of the aforementioned," it read, "the interests of the depositors are at risk and it is necessary to carry out an immediate administration control of Stanford Bank, Panama." (Reporting by Caracas, Mexico City, Quito, Panama, Bogota bureaus; Writing by Patrick Markey; Editing by Toni Reinhold)

Stanford charges spark run on banks

People seeking to withdraw funds line up outside the Bank of Antigua in St John's Photograph: Philip Brown/Reuters

The criminal investigation into the business empire of the cricket tycoon Sir Allen Stanford sowed panic in the Caribbean and Latin America yesterday as governments and investors scrambled to uncover the extent of the alleged $8bn fraud.

The prime minister of Antigua warned of "catastrophe" for the nation, depositors rushed to withdraw funds in bank branches around the region, and authorities in Colombia, Panama, Peru and Venezuela began their own investigations into the Texas billionaire's financial dealings.

Last night, US television channels reported that Stanford had attempted to leave the country by private jet from Houston to Antigua, but the plane leasing company refused his credit card.

On Tuesday the US securities and exchange commission accused Stanford of fraudulently selling $8bn (£5.6bn) in high-yield certificates of deposit. It sought to freeze assets and appoint a receiver. But the tycoon himself was nowhere to be found and US marshals were reportedly unable to serve him with court orders.

Sources at the SEC confirmed they were searching for the billionaire, who has not been seen in public since news of alleged fraud broke.

Stanford International Bank has 30,000 clients in 131 countries, as well as advisers in 30 US offices.
Antigua, a sleepy island with a population of 70,000, forming half of a Caribbean nation with Barbuda, risks being the worst hit. It was here that Stanford set up his headquarters in a 30,000 sq ft Georgian-style hilltop building.

The Stanford Investment Bank looked outwardly calm yesterday. Its giant mahogany doors were shut and security guards turned reporters away from the elegant compound lush with flowering bougainvillea and palm trees. But a steady stream of wealthy investors could be seen seeking to withdraw their fortunes.

Gonzalo Gonzalez had flown from Venezuela. He had been told he could not take any money out and was anxiously awaiting a meeting with management.

A British expatriate who asked not to give her name said she feared she had lost her entire savings of $500,000. She first became concerned about the bank last week when a brother-in-law in Canada warned her that trouble was brewing and she immediately put in for a total withdrawal. But it takes five working days for the notice to come through; her deadline is today, which is likely to be too late.

Educated in Roehampton, and having lived in Antigua for the past 12 years, she said her lifestyle in retirement with her husband was now in tatters. "We will have to work out how much we have left."

Stanford is the island's biggest investor and private employer. He has lived there for more than 20 years and holds dual US-Antiguan citizenship. He was the first American to receive a knighthood from the island's government.

"The fall-out threatens catastrophic and immediate consequences ... There is no need for panic," Baldwin Spencer, the prime minister said on television. He said he was working on a contingency plan with the six-nation eastern Caribbean central bank and Antigua's central bank.

The affair has invited comparisons with the events surrounding the Wall Street investment manager Bernard Madoff, who is suspected of a $50bn fraud.

In Venezuela, hundreds of depositors tried for a second day to withdraw savings in the Caracas branches of Stanford International. Venezuelans have about $2.5bn invested in the bank, the country's regulator said. The government tried to calm clients of a Venezuelan sister firm whose assets were not linked to the business.

The fallout shook English cricket. Giles Clarke was urged to consider his position as the chairman of the England and Wales Cricket Board.