See The PWC website here
Prime Minister Gordon Brown has announced additional help for people facing repossession. Eight major lenders have signed up to the plan, which is meant to cut the risk of homes being repossessed. Read original article.
Our City Diaries are written by people who work in finance and have had a front row seat as their industry goes through the biggest changes in decades.
They will be giving us regular insiders' updates on the mood in the City of London and the dramatic changes in the world of finance.
Emma (not her real name) works in a High Street branch of a large UK bank.
Walking into work today you could cut the atmosphere with a knife. I have never known the place to be so quiet, yet colleagues tell me they are hitting their targets which have been vastly reduced to compensate the 'credit crunch'.
The few customers who ventured in today were only interested in paying bills, unwilling to enter into conversations. A lot of customers today only wished to open a savings account from which bills were to be paid.
The focus at the moment is on insurance sales to generate commission. There is no humour in the place and hardly any talking amongst colleagues. At this time of year usually parties are being discussed or organised but not this year.
Products have been tightened with no chance of exceeding new recommendations for lending. Large deposits are now required and unless a 25% deposit is available for new lending then the answer is no.
Customers are telling us that job security is the main reason stopping them borrowing or splashing out on purchases as they used to. We are worried about redundancies too. Some of us were laid off a few weeks ago from another department.
Even the phones are not ringing nearly as much as they used to. 
Caroline (not her real name) works in a branch of another UK bank.
We all had high hopes that recent announcements would help kick-start the housing market and therefore mortgage applications.
All my colleagues know that now is not the time to be thinking of moving house with falling prices and job uncertainty. However, the company see it differently. They still expect us to be able to refer customers for new mortgages as if there was no problem at all. We try our hardest but that's just not good enough apparently.
Stress levels are rising daily, staff are going off sick and customers are becoming more agitated. Staff morale is so low, I think we are going to come back after Christmas and be told that's it, no more job! I really miss colleague banter and the support we gave each other. Now it's just think of number one.
Tom (not his real name) works in the investment industry.
Many traders I speak to argue that what makes this recession particularly nasty is that it didn't happen earlier. The longer the credit bubble went on, the bigger the pain would be when it burst. Cheap credit was just an illusion.There are predictions that interest rates might be slashed further, perhaps to 2% in the near future. However, many are saying that the unthinkable will happen, that the UK will replicate what Japan did a few years ago and have a 0% interest rate in order to try and revive its economy.
The idea is to show the Bank's commitment to reviving UK industry. However, any measures take time to come to fruition and are heavily reliant on the sentiment of the financial markets.
While interest rate cuts might be seen as positive, they do not solve one of the fundamental issues behind this crisis, the fact that the cost of borrowing is not passed onto the consumers, and more importantly, that banks are not lending to each other. This has sucked the lifeblood out of the economy and is the first step to any recovery.
The recent pronouncements by our top politicians that they are thinking of ways to force banks to lend, illustrates just how crucial and acute this is.
In this sort of environment millions of households across the country have curbed their spending. This is another problem as demand for goods and services is clearly falling.
The overall conclusion is that we are in for a lengthy downturn and there is not much we can do about it. Any measures introduced by the Bank of England can only soothe some of the pain, they won't heal the UK economy on their own.
SELDOM has corporate strategy been turned on its head so quickly. Barely a year ago, cash was a dangerous thing to accumulate: activist investors stalked companies, urging boards to return it to investors, to pay special dividends or to buy back shares. Ever since the 1980s the fashion had been to make companies as lean as possible, outsourcing all but your core competencies, expanding your just-in-time supplier system around the globe, loading up with debt to “leverage” your balance-sheet. Old-style defensive conglomerates, such as Arnold Weinstock’s General Electric Company, were dismantled. Companies that hoarded cash—even ones as good as
No longer. For many big American companies, the day of reckoning came two months ago when the deepening financial crisis brought about the abrupt closure of the overnight commercial-paper market. This briefly sent even the most solid companies into a desperate scramble to find money to meet such basic obligations as paying their staff. Since then, the guiding principle for managers everywhere has been to gather up whatever cash they can find, and then do their damnedest to keep as much of it as possible for as long as possible.
For some firms—the investment banks or the
This cash squeeze is a huge problem for the world economy, because as firms cut discretionary spending wherever they can, the result is likely to be a corporate version of what John Maynard Keynes called the “paradox of thrift”. Every firm does what is prudent for itself, but by cutting its spending it slows down the economy still further and thus hurts everybody, including itself. This will only reinforce the need for expansionary monetary and fiscal policy (see article) to boost demand; and also for more direct support in credit markets, such as the Federal Reserve’s prop for the commercial-paper market (already tapped by some large American firms).
These are vital tasks for politicians and regulators, but for managers the paradox works the other way: spending money might be in society’s interests, but not in their shareholders’. For a whole generation of bosses, what they do in the next few months may come to define the rest of their careers.
For the few lucky hoarders, this is a time to feel both smug and predatory. Japanese firms have been able to make $71 billion in foreign acquisitions so far in 2008, which is on track to be a record year. Bill Gates thought his company should have enough cash to survive a year with zero sales: its $21 billion pile now gives it even more options than normal. Cash-rich drugs firms, such as Eli Lilly, Roche, Merck and Bristol-Myers Squibb, have all said that the financial turmoil presents an opportunity for them to buy biotechnology companies at knock-down prices.
For the non-hoarders, there is a balance to be struck. In the short term some of the old ways to perk up your share price now seem suicidal. Huge dividends or share buybacks have to be regarded as reckless (even though share prices, as Warren Buffett points out, look cheap). What was once seen as evidence of corporate fitness for the moment looks like anorexia. More padding—in the form of cash in the bank—will be necessary to secure a clean bill of health. Likewise, ultra-lean supply chains no longer look like such a brilliant idea when you have to find cash to keep afloat a supplier that cannot get even basic trade credit. “Just in time” is giving way to “just in case”.
But for how long? This new conservatism is not solely motivated by the fact that cash is hard to come by; demand is also falling for most firms’ products. Households and firms alike have hit the pause button, and no one knows when they will press “play” again. Companies need to plan for that day as well.
As in every downturn, who succeeds and who fails is likely to be determined not by what costs are cut, but how they are cut and above all which ones are not cut. There is a hint of blind panic about some redundancies. Companies argue that one big swing of the axe does less harm than what Sequoia calls the “death spiral” of successive morale-sapping rounds of modest job cuts. But firms that get a reputation for too readily offloading people whom they described only recently as “our most important assets” will suffer eventually in the labour market. One reason why downturns tend to be good times to launch new businesses is because established companies abandon promising growth opportunities too fast. Oracle and Microsoft were both born in difficult economic times.
And there will also come a time when the necessity to safeguard cash is not so all-consuming. Rash though some of them seem today, the Western management fads of the past 30 years improved productivity (one year’s outperformance does not prove the Japanese model was right). But even if cash does become more plentiful, it is doubtful whether today’s generation of managers will be quite so cavalier about taking it for granted. That change in attitude, more than anything else, will be the legacy of this credit crunch for the corporate world.
"For the first time ever we're now seeing that in the financial markets it costs money to guarantee you against a US government default."
For the American government there is simply no such thing as living beyond its means. With the rest of the world demanding dollars, all the US has to do is to keep printing them