New research has revealed that one-third of UK savings accounts offer an interest rate of 0.5% or below.

The return is equivalent to 12p a month or £1.41 over a year, on an average savings balance of £2,813. Base rate decreases represent a double edged sword for consumers.

While mortgage borrowers on tracker rates have benefited from recent aggressive cuts in the base rate, savers have been penalised.

No improvement is expected in the early part of this year because the Bank of England is likely to cut the base rate again, in efforts to support the UK’s failing economy.

Attractive savings rates are still available, with 3.6% offered on Alliance & Leicester’s eSaver account and 3.55% available at online bank, ICICI Hisave.

Meanwhile, the recession would appear to have frightened Britons into saving more.

Latest figures from the British Bankers’ Association show a £4 billion rise in savings deposits, in December.

However, inflation currently stands at 3.1% meaning that rates on many savings accounts are insufficient to maintain the value of the cash they contain.

Despite the rush to save, Britons seem to be well aware of this because the Association of British Insurers’ recent Savings and Protection survey found that 73% of respondents agreed the benefits of saving have diminished over the past 12 months.

Japan's central bank keeps key interest rate unchanged at 0.1 percent

Japan's central bank has kept its key interest rate on hold as widely expected but sharply downgraded its economic outlook amid an ever-deepening recession.

In a unanimous vote Thursday, the Bank of Japan's policy board chose to keep the overnight call rate target at 0.1 percent.

The central bank now predicts that the world's second largest economy will shrink a median 1.8 percent this fiscal year through March and will contract 2 percent next fiscal year.

But with rates already super low, the Bank of Japan has little room to maneuver on the interest rate front, despite renewed concerns this week about the health of the global banking sector

The World Bank welcomes the agreement reached between Latvia and the International Monetary Fund on a policy package to address economic and financial vulnerabilities in the wake of the global economic crisis.

As part of this €7.5 billion package (US$10.5 billion) supported by the European Union (EU), International Monetary Fund (IMF), and a number of multilateral and bilateral donors, the World Bank is ready to contribute up to €400 million (about $550 million equivalent), subject to agreement on a strong program of reforms in the financial sector and social sectors.

Citigroup Bailout Critical for Economy to Recover

Many people are wondering why Citigroup should get a bailout, and the Big 3 automakers were told to go packing. After all, both companies made bad strategic decisions - Citigroup in using too much leverage in buying mortgage-backed securities, and the Big 3 in not retooling for more fuel-efficient vehicles. Both have thousands of employees that will be laid off if the companies go bankrupt. Are banks somehow more important to the economy than auto manufacturers?

The next banking crisis on the way

Is this the quarter when banks finally admit all of their problems?

On Jan. 15, Citigroup announced it would take an $18.1 billion write-down on its portfolio of subprime mortgages and other risky debt, and the bank cut its dividend 41%.

With other banks following suit -- Merrill Lynch reported $16 billion in write-downs and other charges two days later, and Wells Fargo delivered similarly huge losses -- will they throw everything, including the kitchen sink, into their losses? That kind of quarter always marks the bottom in a crisis like this.

Nah. The banks and other financials have more losses from the subprime-mortgage mess on their books that they haven't yet confessed. Worse, the mortgage debacle has spread to other types of debt, with banks and other financial companies reporting mounting losses in their credit card and auto loan portfolios. And worst of all, the next big leg of the crisis -- the one I think will mark the true bottom -- has just started.

As the economy slows, the default rate is rising for corporate debt, especially for the high-risk, high-yield corporate debt called "junk" by many of us. That's opening a Pandora's box of potential write-downs that could dwarf the losses in the mortgage market.

Bank of America

Before 1993, the Bank of America that exists today was known as NationsBank. In 1998, NationsBank merged with San Francisco-based BankAmerica and assumed the Bank of America name. Bank of America is the largest commercial bank in the United States. Bank of America (July 19, 2006) reported second quarter 2006 net income of $5.48 billion, surpassing that of Citigroup for the first time.

In 2005, Bank of America acquired a 9% stake in China Construction Bank for $3 billion. Bank of America currently has offices in Hong Kong, Shanghai, and Guangzhou and is looking to greatly expand its Chinese business as a result of this deal. Bank of America has also invested in opening new branches in India, particularly Mumbai. Bank of America operated under the name BankBoston in many other Latin American countries, including Brazil. In 2006, Bank of America sold all BankBoston's operations to Brazilian bank Banco Itau, in exchange for Itau shares. The BankBoston name and trademarks were not part of the transaction and, as part of the sale agreement, cannot be used by Bank of America. That, in practical terms, deemed the definite extinction of the BankBoston brand.

Bank of America's Global Corporate and Investment Banking spans the Globe with divisions in United States, Europe and Asia. The U.S. headquarters are located in New York, European headquarters are based in London and Asia's headquarters are split between Singapore & Hong Kong.

Bank of America Announces Third Quarter Earnings and Capital Raising Initiatives

Earns $1.18 Billion, or $0.15 Per Share

CHARLOTTE, N.C., Oct. 6 /PRNewswire-FirstCall/ -- Bank of America Corporation today reported third quarter 2008 net income of $1.18 billion, or $0.15 per share, down from $3.70 billion, or $0.82 per share, a year earlier.

The company also announced two initiatives to raise capital, targeting an 8 percent Tier 1 capital ratio. The company intends to sell common stock with a target of raising $10 billion. In addition, the Board of Directors has declared a quarterly dividend on common stock of $0.32 to be paid on December 26, 2008 to shareholders of record on December 5, 2008. Assuming the current number of issued and outstanding shares, the reduction from $0.64 paid in recent quarters would add more than $1.4 billion to capital each quarter.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth D. Lewis, chairman and chief executive officer. "We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months. We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago. We now believe it is important to be at or near our 8 percent Tier 1 capital ratio target given the recessionary conditions and outlook for still weaker economic performance which we expect to drive higher credit losses and depress earnings. We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability.

"We know many investors in our stock are quite disappointed with a dividend reduction," Lewis continued. "It is not a decision we made lightly. However, we cannot pay out what we have not earned. Our goal is to resume dividend increases from the new level as soon as our earnings performance warrants.

"All that said, our company continues to be profitable, and we have been able in the last year to make a number of moves that should significantly enhance our earnings when economic and financial market conditions improve. Our diversity and scale give us strength to deal with the current issues that few competitors can match. I have never been more optimistic about the long-term prospects of Bank of America."

Lower earnings in the third quarter compared with a year earlier were driven by a significant increase in provision expense, as credit costs continued to rise, partially offset by advances in various income categories largely as a result of the acquisition of Countrywide Financial Corporation on July 1, 2008 and LaSalle Bank. Countrywide results were not included in prior period results.

Bank of America is clearly benefiting from consumer and business flight to safety, as shown by year-over-year increases in loans and especially deposits. While consumer credit costs continued to increase in line with economic conditions, the company continued to increase the number of customer accounts and make progress in such categories as investment banking.

Third Quarter Selected Business Developments

-- Retail deposits increased $56 billion to $586 billion from June 30 to September 30, 2008, including the addition of $35 billion from Countrywide, extending Bank of America's lead as the largest retail depository institution in the United States. Excluding the impact of Countrywide, Bank of America gained $21 billion in retail deposits during the quarter as consumers moved money to safety. That gain was almost three times the industry average. Service charges increased $84 million from the second quarter, but debit card revenue declined slightly as consumers pulled back on spending.

-- Reflecting deteriorating economic conditions, the consumer credit card business experienced a decrease in purchase volumes, slowing repayments and increased delinquencies during the quarter. Credit card held net charge offs increased to $1.24 billion, representing a net charge off rate of 6.14 percent. Credit card managed net credit losses rose to $3.00 billion, representing a loss rate of 6.40 percent.

-- Investment banking income was up 22 percent from the previous year to $474 million. Revenue in Capital Markets and Advisory Services was adversely impacted by $952 million in CDO-related charges, $327 million in leveraged loan and commercial mortgage related writedowns and $190 million in losses on a commitment to buy back auction-rate securities from clients.

-- Equity investment income results were negatively impacted by writedowns totaling $320 million on the preferred stock of Fannie Mae and Freddie Mac.

-- Global Wealth and Investment Management revenue was affected by $630 million in support for cash funds and $123 million in losses on a commitment to buy back auction-rate securities from clients.

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.



Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.

They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

Europe has already had its first foretaste of what this may mean. Iceland’s demise has left them nursing likely losses of $74bn (£47bn). The Germans have lost $22bn.

Stephen Jen, currency chief at Morgan Stanley, says the emerging market crash is a vastly underestimated risk. It threatens to become “the second epicentre of the global financial crisis”, this time unfolding in Europe rather than America.

Austria’s bank exposure to emerging markets is equal to 85pc of GDP – with a heavy concentration in Hungary, Ukraine, and Serbia – all now queuing up (with Belarus) for rescue packages from the International Monetary Fund.

Exposure is 50pc of GDP for Switzerland, 25pc for Sweden, 24pc for the UK, and 23pc for Spain. The US figure is just 4pc. America is the staid old lady in this drama.

Amazingly, Spanish banks alone have lent $316bn to Latin America, almost twice the lending by all US banks combined ($172bn) to what was once the US backyard. Hence the growing doubts about the health of Spain’s financial system – already under stress from its own property crash – as Argentina spirals towards another default, and Brazil’s currency, bonds and stocks all go into freefall.

Broadly speaking, the US and Japan sat out the emerging market credit boom. The lending spree has been a European play – often using dollar balance sheets, adding another ugly twist as global “deleveraging” causes the dollar to rocket. Nowhere has this been more extreme than in the ex-Soviet bloc.

The region has borrowed $1.6 trillion in dollars, euros, and Swiss francs. A few dare-devil homeowners in Hungary and Latvia took out mortgages in Japanese yen. They have just suffered a 40pc rise in their debt since July. Nobody warned them what happens when the Japanese carry trade goes into brutal reverse, as it does when the cycle turns.

The IMF’s experts drafted a report two years ago – Asia 1996 and Eastern Europe 2006 – Déjà vu all over again? – warning that the region exhibited the most dangerous excesses in the world.

Inexplicably, the text was never published, though underground copies circulated. Little was done to cool credit growth, or to halt the fatal reliance on foreign capital. Last week, the silent authors had their moment of vindication as Eastern Europe went haywire.

Hungary stunned the markets by raising rates 3pc to 11.5pc in a last-ditch attempt to defend the forint’s currency peg in the ERM.

It is just blood in the water for hedge funds sharks, eyeing a long line of currency kills. “The economy is not strong enough to take it, so you know it is unsustainable,” said Simon Derrick, currency strategist at the Bank of New York Mellon.

Romania raised its overnight lending to 900pc to stem capital flight, recalling the near-crazed gestures by Scandinavia’s central banks in the final days of the 1992 ERM crisis – political moves that turned the Nordic banking crisis into a disaster.

Russia too is in the eye of the storm, despite its energy wealth – or because of it. The cost of insuring Russian sovereign debt through credit default swaps (CDS) surged to 1,200 basis points last week, higher than Iceland’s debt before Götterdammerung struck Reykjavik.

The markets no longer believe that the spending structure of the Russian state is viable as oil threatens to plunge below $60 a barrel. The foreign debt of the oligarchs ($530bn) has surpassed the country’s foreign reserves. Some $47bn has to be repaid over the next two months.

Traders are paying close attention as contagion moves from the periphery of the eurozone into the core. They are tracking the yield spreads between Italian and German 10-year bonds, the stress barometer of monetary union.

The spreads reached a post-EMU high of 93 last week. Nobody knows where the snapping point is, but anything above 100 would be viewed as a red alarm. The market took careful note on Friday that Portugal’s biggest banks, Millenium, BPI, and Banco Espirito Santo are preparing to take up the state’s emergency credit guarantees.

Hans Redeker, currency chief at BNP Paribas, says there is an imminent danger that East Europe’s currency pegs will be smashed unless the EU authorities wake up to the full gravity of the threat, and that in turn will trigger a dangerous crisis for EMU itself.

“The system is paralysed, and it is starting to look like Black Wednesday in 1992. I’m afraid this is going to have a very deflationary effect on the economy of Western Europe. It is almost guaranteed that euroland money supply is about to implode,” he said.

A grain of comfort for British readers: UK banks have almost no exposure to the ex-Communist bloc, except in Poland – one of the less vulnerable states.

The threat to Britain lies in emerging Asia, where banks have lent $329bn, almost as much as the Americans and Japanese combined. Whether you realise it or not, your pension fund is sunk in Vietnamese bonds and loans to Indian steel magnates.