NEW YORK (Reuters) - British banking giant HSBC will try to raise $18 billion to quell investor concerns as a worsening global economy punished famed investor Warren Buffet’s Berkshire Hathaway with a 96 percent plunge in profits.
U.S. President Barack Obama stressed the severity of the crisis in an effort to get a $3.55 trillion budget through a sceptical Congress.
The stumbling economy was also foremost on the minds of top Chinese leaders, with Premier Wen Jiabao quoted by state news agency Xinhua as saying the worldwide slump had yet to reach a bottom.
Looking to stem the damage to its export-driven economies from the crisis, leaders of Southeast Asian nations agreed to ease monetary policy and resist protectionism, according to a draft statement from a regional summit.
In the United States, the collapse in profits at Berkshire Hathaway, the wide-ranging conglomerate led by Buffett, showed just how hard the corporate sector was reeling from the slump.
“The economy will be in shambles throughout 2009 and for that matter, probably well beyond,” Buffett said in a letter to investors, in which he admitted to “doing some dumb things.”
British Prime Minister Gordon Brown for this part stressed the need more rigorous supervision of the global banking system, a day before EU leaders meet to thrash out ways to tackle the financial crisis ahead of an April 2 G20 summit to be held in Britain.
Brown showed little sympathy, at least in rhetoric, for bankers whose dodgy lending practices and bonus culture brought the international financial system to the brink of collapse.
“Some practices are indefensible and they have got to be cleaned up now. It’s time to set new rules for the banks of all countries,” he said.
In a sign of the very human toll of this crisis, local authorities in England were seeking powers from the government to use shops for community facilities in the face of an increasing number of retail premises being left vacant because of the recession.
In Germany, Chancellor Angela Merkel urged European Union states to work together to deal with the downturn.
As financial institutions grappled with tighter credit conditions, two sources familiar with the matter said Britain’s HSBC would announce a share sale of up to $18 billion, the biggest ever for an British bank.
HSBC is expected to report a 22 percent fall in annual profits to $19 billion. The firm was said to have avoided many of the big credit market hits taken by rivals, but rising bad debts around the world are pressuring its bottom line.
The coming week was likely to bring a further barrage of bad news. Two key reports on U.S. employment and manufacturing were both expected to show a significant deterioration.
Analysts believe the U.S. economy lost a staggering 648,000 jobs in February alone. Such a reading would be the worst since World War Two, and would push the total number of jobs eliminated during this recession above 4 million.
Another source of concern over the next few days is the situation of beleaguered insurer AIG, which received a controversial bailout from the Federal Reserve last year.
The U.S. government, AIG and credit rating agencies, including Moody’s, S&P and A.M. Best, are in discussions, according to a source familiar with the matter, as the firm prepares to post a quarterly loss of roughly $60 billion. That shortfall equates to about $460,000 a minute, and would be the largest in corporate history.
AIG is considered too vital a pillar to the global financial system because of its central role in the market for credit default swaps, securities that have been blamed for accelerating the pace of credit losses in global markets.
A key focus of the talks is to avoid a ratings downgrade, which could have serious ramifications on the insurer’s liquidity and hurt its businesses, with possible ripple effects throughout an already fragile financial sector.
Amid the turmoil, governments around the world scrambled in an effort to shield their economies from the slump. Leaders of the 10-member ASEAN (South East Asian Nations), meeting in Thailand, vowed to work with the G20 developed and developing nations on reforming global financial institutions.
Yet critics argue while ASEAN leaders have argued against protectionism in world trade, they have defended their own buy-local campaigns saying they are consistent with trade rules.
In the European Union, a commitment to open markets and help for poorer member states also risked losing ground to pressure on governments to protect their national industries.
With President Barack Obama pumping up the U.S. budget for more spending to halt the downturn, and facing a record $1.75 billion deficit to do so, leaders such as France’s Nicolas Sarkozy have said Europe should be ready to follow suit.
“If the United States defends its industry ... maybe in Europe we can do the same,” he said this week, referring to certain “buy America” provisions in the president’s recently passed economic stimulus bill.
Reporting by Jonathan Stempel, Paritosh Bansal, Christina Fincher, Writing By Pedro Nicolaci da Costa; Editing by Eric Walsh