PRESS DIGEST - Financial Times - March 28

Financial Times

MORTGAGE RATES LIFTED AS LENDERS FEEL PAIN

In moves that are likely to put further strain on the property market, three of the UK's biggest lenders tightened up the supply of mortgages and increased their interest rates. Nationwide increased the cost of two-year mortgage tracker rates for new customers by 0.57 percent to 7.1 percent and is increasing its fixed rate mortgages to 0.2 percent. Cheltenham & Gloucester and IF increased the prices of certain two-year tracker rates by around 30 basis points. The moves are a blow for consumers who are due to refinance mortgages this year, with Charcol's Ray Boulger saying he believes over 2.75 million people will be affected. The increased mortgage rates partly reflect the higher costs of wholesale funding for banks that has risen sharply in recent days. The three-month London Interbank Offered Rate has climbed to around six percent, the highest this year.

RATE CUT MAY BE NEEDED TO AVOID RECESSION, SAYS REPORT

A report from Michael Hume, chief European economist at Lehman Brothers, says the UK faces a slightly less than three-in-one chance of slipping into recession and that the Bank of England may have to aggressively cut interest rates to avoid following the U.S. downward spiral. Lehman Brothers is leaving its 2008 growth forecast of 1.7 percent unchanged but has cut its forecast for 2009 almost in half to 1.1 percent. One of the factors likely to hit consumption, and therefore growth, is a forecast house prices will be hit by tighter lending conditions and fall by 11 percent in nominal terms by the end of next year.

MIXED DATA ON IMPACT OF CREDIT CRISIS

A range of data released on Thursday reveals activity in the housing market remains at a low level but business investment has been stronger than thought and retail sales have steadied. The British Bankers Association said the number of mortgage approvals for house purchase rose from 43,732 in January to 43,870 last month, but that the number was still a third below the level of approvals in February last year. The Office for National Statistics reported business investment rose 1.8 percent in the fourth quarter of 2007, and the CBI's distributive trades survey showed retail sales steadied in March, with the balance of reported sales rising from minus three to plus one.

ECB SET FOR ACTION TO CALM FINANCIAL MARKETS

The European Central Bank said on Thursday it was prepared to take fresh action to calm tensions in the financial markets, as its president, Jean-Claude Trichet, dismissed suggestions that its emergency liquidity injections were posing inflationary dangers. The ECB, which this week injected extra seven-day funds in its regular auction, will have been concerned at recent rises in money market interest rates. Unicredit economist Marco Annunziata, said: "There is an underlying tension that has not disappeared and is exacerbated when you have a close look at the quarterly books." He said the ECB's concern about the pressures facing eurozone banks and the impact on the real economy appeared to have intensified since the U.S. rescue of Bear Stearns.

THIRTEEN BILLION POUND DEAL "IS GOOD VALUE"

Britain's procurement minister, Baroness Taylor, said on Thursday a 13 billion pound deal to buy a new fleet of refuelling tankers for the Royal Air Force was good value for taxpayers. While unveiling the 27-year private finance deal to purchase 14 new Airbus A330 aircraft from an EADS-led (EAD.PA) consortium, Taylor said: "This has been signed off by the Treasury as a value for money solution and I think we're happy they've seen it in that light."

MAN BUCKS TREND WITH SOLID RESULTS

Man Group (EMG.L) has shrugged off worries about the confidence of investors in hedge funds as it reported strong sales, a fall in redemptions and that profits would be ahead of analyst forecasts. The hedge fund manager said strong results from its AHL fund had boosted performance fees and that pre-tax profits from continuing operations for the year to the end of March would be above the market estimate of 1.8 billion dollars. Assets under management increased 22 percent in the past year to 75 billion dollars, up by 3.3 billion dollars in the last three months alone. The better-than-expected figures belie a general feeling of crisis in the hedge fund industry brought on by poor performance by others reliant on leverage and several high-profile failures.

NOT RESTING: LAUREL SPLIT IN TWO

Property entrepreneur Robert Tchenguiz is splitting his Laurel Pub Company after buying back almost 300 outlets from administration and making an injection of up to 60 million pounds of capital. Tchenguiz wrote off 90 loss-making outlets after failing to attract any interest in them, and on Thursday announced the repurchase of 161 pubs and 132 restaurants. Laurel's structure and name will disappear and be replaced by two companies, Town & City Pubs and Bay Restaurants. Yate's will make up most of the pubs business and the restaurant business will include Slug & Lettuce, Ha Ha bar & grill and La Tasca.

A&L RATING DOWNGRADED