Mega UK News Blog

October 13, 2014

News Release - The economic impact of sterling’s recent moves: more than a midsummer night’s dream - speech by Kristin Forbes

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News Release - The economic impact of sterling’s recent moves: more than a midsummer night’s dream - speech by Kristin Forbes

Speaking at an event organised by 100 Women in Hedge Funds, at the Canada Imperial Bank of Commerce, Kristin Forbes discusses the impact of the recent appreciation in the sterling exchange rate on the UK economy.   She saw Midsummer Night’s dream at the Globe last year, and makes various references to it in her speech.  For example, while Shakespeare reminds us that ‘the course of true love never did run smooth’ Kristin warns that ‘the same could also be said of the course of UK inflation, when buffeted by large exchange rate movements’.

The main messages of Kristin’s speech are as follows:

  • The sterling exchange rate appreciated by 14.5% between March 2013 and July 2014. ‘The effects of exchange rate movements generally take a substantial amount of time to play out’ and therefore this appreciation will continue to have powerful effects on the economy over the next few quarters.
  • One consequence of the appreciation is to reduce the sterling value of UK firms’ profits, and this has likely contributed to the FTSE’s underperformance relative to other major developed countries.
  • Model simulation results suggest that the impact of the appreciation of sterling ‘on overall employment and economic growth would be meaningful’.  Kristin provides detailed estimates in the speech.
  • ‘The impact on prices and inflation is more substantive’.  Econometric evidence suggests that large movements in the exchange rate (greater than 5%) tend to have large effects on import prices and get passed through quickly – within 6 to 12 months.
  • Kristin reports simulation results which ‘suggests that inflation is about 0.8 percentage points lower today relative to what it would have been if sterling had not appreciated….and by the end of this year inflation could be close to 1 percentage point lower’,  though she warns ‘not to take the point estimate from this exercise as precise’.
  • This raises various questions including ‘could the extent of pass through… be lower than the simulated results?’  ‘If exchange rate movements are significantly affecting prices, should we look through these effects?’ and ‘as this drag on inflation…fades will any domestic inflationary pressures cause prices to increase faster than expected?’
  • To understand the extent of inflationary pressure without the dampening effect of the exchange rate, Kristin examines seven different measures of ‘domestically generated inflation’ – measures of inflation that should be less directly affected by exchange rate movements.  These data suggest that domestic price pressures are ‘well contained’.  Although there are some differences across the indicators, there is little evidence of a recent pickup in inflation.  ‘These bottom up indicators therefore present a very different signal then implied by the ‘top down’ estimates of inflation after adjusting for sterling’s recent appreciation’.
  • Kristin concludes that ‘understanding recent trends in the domestic component of inflation has been challenging’.  ‘Has sterling’s appreciation had less of a dampening effect on prices than has traditionally occurred – perhaps due to structural changes in the UK or global economy - which would indicate lower underlying inflation pressures? Or are the measures of domestic inflation understating current inflationary risks – perhaps due to the long lags before timely data is available?’  Given these questions, ‘it is critically important to monitor measures of prospective inflation to determine the appropriate path of monetary policy’.

Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion

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Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion

The Bank of England’s Monetary Policy Committee at its meeting on 8 October voted to maintain Bank Rate at 0.5%. The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.

The minutes of the meeting will be published at 9.30 a.m. on Wednesday 22 October.

News Release - Bank of England announces the timetable for publication of the 2014 UK stress testing results

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News Release - Bank of England announces the timetable for publication of the 2014 UK stress testing results

The Bank of England is today setting out the timetable for the publication of the UK stress test results. This follows an announcement by the European Banking Authority (EBA) about the EU-wide stress test timetable.

In March 2013, the Financial Policy Committee (FPC) recommended that regular stress testing of the UK banking system should be developed to assess the system’s capital adequacy. In a Discussion Paper published in October 2013, the Bank of England set out proposals for the main features of a framework for annual and concurrent stress-testing of the UK banking system.

On 29 April 2014 the Bank of England set out details of the scenario for the stress tests for the eight major UK banks and building societies. The UK stress testing exercise built on the EU-wide stress test, announced in January 2014 by the EBA. The Bank of England added a number of additional UK layers to the EBA stress test (UK variant) which explore vulnerabilities facing the UK banking system.

The Bank of England has received firms’ initial stress testing submissions and is in the process of analysing the results. The FPC and the PRA Board will discuss that analysis over the autumn. Final decisions on the results of the stress tests will be made by both committees on 15 December and will be fed back to the firms involved on the same day. The UK variant stress test results will be published alongside the Financial Stability Report at 07:00 hrs (GMT) on 16 December.

The Bank of England will not comment on any speculation about the results until they are published. The results will be decided on 15 December, not before.

Citigroup Announces Reference Yields and Total Consideration for Note Tender Offers

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New York – Citigroup Inc. (“Citigroup”) announced today the applicable Reference Yield and Total Consideration for the previously announced cash tender offers (each, an “Offer” and, collectively, the “Offers”) with respect to each series of Notes listed in the table below (the “Notes”).

These Offers are consistent with Citigroup’s liability management strategy, and reflect its ongoing efforts to enhance the efficiency of its funding and capital structure. Since 2013, Citigroup redeemed or retired U.S. $19.6 billion of securities, excluding exchanged securities, of which U.S. $7.3 billion was redeemed or retired in 2014, reducing Citigroup’s overall funding costs. Citigroup will continue to consider opportunities to redeem or repurchase securities, based on several factors, including without limitation, the economic value, potential impact on Citigroup’s net interest margin and borrowing costs, the overall remaining tenor of Citigroup’s debt portfolio, capital impact, as well as overall market conditions.

The Offers are being made pursuant to the offer to purchase dated September 9, 2014 (as may be amended or supplemented from time to time, the “Offer to Purchase”), and the related letter of transmittal (as may be amended or supplemented from time to time, the “Letter of Transmittal”) which set forth in more detail the terms and conditions of the Offers. Capitalized terms used but not otherwise defined in this announcement shall have the meaning given to them in the Offer to Purchase.

The Total Consideration and Tender Offer Consideration for each series of Notes were determined based on the relevant Reference Yield as of 2 p.m., New York City time, on September 23, 2014, in accordance with the terms set forth in the Offer to Purchase by reference to the relevant Fixed Spread and the relevant Reference U.S. Treasury Security as follows:

Read complete release with table.

The Early Tender Date for the Offers has now passed. Because the aggregate principal amount of the 5.500% Notes due 2017 tendered at or prior to the Early Tender Date exceeded the applicable Maximum Series Tender Cap, Citigroup does not intend to accept for purchase any additional Notes of this series. All Notes of this series that were validly tendered at or prior to the Early Tender Date will be accepted for purchase on the Early Settlement Date.

Because the aggregate principal amount of the 6.125% Notes due 2018 tendered at or prior to the Early Tender Date did not exceed the Maximum Series Tender Cap, Citigroup will continue to accept for purchase Notes of this series up to the Maximum Series Tender Cap (subject to possible proration). All the Notes of this series that were validly tendered at or prior the Early Tender Date will be accepted for purchase on the Early Settlement Date. Holders of this series of Notes that are validly tendered after the Early Tender Date and accepted for purchase will receive the applicable Tender Offer Consideration, which is equal to the Total Consideration minus the Early Tender Premium.

The obligation of Citigroup to accept for purchase, and to pay the Tender Offer Consideration or the Total Consideration, as the case may be, for Notes validly tendered pursuant to the Offers is subject to, and conditional upon, the satisfaction or, where applicable, waiver of a number of conditions described in the Offer to Purchase and to proration. Citigroup reserves the right, in its sole discretion, to waive any one or more of the conditions at any time.

Citigroup has retained its affiliate, Citigroup Global Markets Inc., to serve as the sole dealer manager for the Offers. Global Bondholder Services Corporation has been retained to serve as the depositary and information agent with respect to the Notes.

For additional information regarding the terms of the Offers, please contact Citigroup Global Markets Inc. at either (800) 558-3745 (toll free) or (212) 723-6106. Requests for documents and questions regarding the tender of Notes may be directed to Global Bondholder Services Corporation at (866) 807-2200 (toll free) or (212) 430-3774 (collect).

The Offer to Purchase and related Letter of Transmittal were first distributed to holders of Notes on September 9, 2014 and published on the website of the Luxembourg Stock Exchange (www.bourse.lu) on September 12, 2014. Copies of the Offer to Purchase and the Letter of Transmittal may also be obtained at no charge from Global Bondholder Services Corporation.

None of Citigroup, its board of directors, the dealer manager, the depository or the information agent makes any recommendation as to whether any Holder of the Notes subject to the Offers should tender or refrain from tendering all or any portion of the principal amount of the Notes.

This press release is neither an offer to purchase nor a solicitation to buy any of these Notes nor is it a solicitation for acceptance of any of the Offers. Citigroup is making the Offers only by, and pursuant to the terms of, the Offer to Purchase and the related Letter of Transmittal. The Offers are not being made to (nor will tenders of Notes be accepted from or on behalf of) holders of Notes in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction. This announcement must be read in conjunction with the Offer to Purchase and, where applicable, the related Letter of Transmittal.

United Kingdom. The communication of the Offer to Purchase and any other documents or materials relating to the Offers is not being made and such documents and/or materials have not been approved by an authorized person for the purposes of Section 21 of the Financial Services and Markets Act 2000. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials as a financial promotion is only being made to those persons in the United Kingdom falling within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or within Article 43(2) of the Order, or high net worth companies, and other persons to whom it may lawfully be communicated in accordance with Article 49(2)(a) to (d) of the Order.

Citigroup, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citigroup provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. Additional information may be found at www.citigroup.com.

Citigroup Declares Preferred Dividends

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New York – The Preferred Stock Committee of the Board of Directors of Citigroup Inc. today declared dividends on Citigroup’s preferred stock as follows:

8.40% Fixed Rate/Floating Rate Non-Cumulative Preferred Stock, Series E, payable October 30, 2014, to holders of record on October 20, 2014. Holders of depositary receipts, each representing one-twenty-fifth of a full preferred share, will be paid $42.00 for each receipt held.
8.125% Non-Cumulative Preferred Stock, Series AA, payable November 17, 2014, to holders of record on November 5, 2014. Holders of depositary receipts, each representing one-thousandth of a full preferred share, will be paid $0.5078125 for each receipt held.
5.800% Noncumulative Preferred Stock, Series C, payable October 22, 2014, to holders of record on October 11, 2014. Holders of depositary receipts, each representing one-thousandth of a full preferred share, will be paid $0.3625 for each receipt held.
5.350% Fixed Rate/Floating Rate Noncumulative Preferred Stock, Series D, payable November 17, 2014, to holders of record on November 5, 2014. Holders of depositary receipts, each representing one-twenty-fifth of a full preferred share, will be paid $26.75 for each receipt held.
7.125% Fixed Rate/Floating Rate Noncumulative Preferred Stock, Series J, payable December 30, 2014, to holders of record on December 19, 2014. Holders of depositary receipts, each representing one-thousandth of a full preferred share, will be paid $0.4453125 for each receipt held.
6.875% Fixed Rate/Floating Rate Noncumulative Preferred Stock, Series K, payable November 17, 2014, to holders of record on November 5, 2014. Holders of depositary receipts, each representing one-thousandth of a full preferred share, will be paid $0.4296875 for each receipt held.
6.875% Noncumulative Preferred Stock, Series L, payable November 12, 2014, to holders of record on October 31, 2014. Holders of depositary receipts, each representing one-thousandth of a full preferred share, will be paid $0.4296875 for each receipt held.
6.300% Fixed Rate/Floating Rate Noncumulative Preferred Stock, Series M, payable November 17, 2014, to holders of record on November 5, 2014. Holders of depositary receipts, each representing one-twenty-fifth of a full preferred share, will be paid $34.125 for each receipt held.

Citi
Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management.

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