Bank Regulators Kick Off Formal Co-Op Probes

By Mark Kleinman, City Editor

Banking watchdogs are poised to kick off formal probes into last year's crisis at the Co-operative Bank in a move which could lead to significant fines or bans for former directors of the lender.

Sky News understands that the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are likely to confirm this week that they are commencing enforcement investigations into the circumstances which led to the Co-op Bank requiring a £1.5bn rescue package.

An insider said that statements confirming the widely-expected decisions by the two regulators could come as soon as Monday, although they could yet be delayed.

The move to begin formal enforcement investigations could result in substantial financial penalties being imposed on the Co-op Bank as well as former directors if they are deemed to have been reckless in their stewardship of the lender.

The recapitalisation of the bank, which was approved by bondholders last month, saw hedge funds take majority ownership and the Co-op Group left with a 30% stake.

The FCA and PRA inquiries are among a host of investigations launched into the crisis at the previously mutually owned bank, which was left saddled by hundreds of millions of pounds of toxic assets, partly as a result of its merger with the Britannia Building Society in 2009.

The Treasury Select Committee will continue to take evidence on Tuesday about the ill-fated effort by the Co-op to acquire 630 Lloyds Banking Group branches.

A separate probe commissioned by the Treasury and undertaken by an as-yet unidentified figure from the world of banking or law will also take place.

In a statement in November, the Treasury said its inquiry would "cover the actions of relevant authorities (regulators and government) and the institution itself, including prudential issues, governance (including the appointment of senior staff) and acquisitions".

That investigation will not, however, begin until after any PRA and FCA enforcement action has been concluded. A shortlist of candidates to oversee the probe has been drawn up with an announcement about the chosen individual expected in the coming weeks.

The FCA said in November that it "fully agrees that the investigation should be led by an independent person, and looks forward to supporting them in their work. The FCA will make its full resources available to support the investigation".

It said: "The timing of the investigation must not prejudice any other criminal or regulatory proceedings. The FCA is already undertaking work to establish whether it should commence a formal enforcement investigation and expects to reach a conclusion shortly."

The PRA, the arm of the Bank of England which is responsible for maintaining financial stability, issued an identical statement.

Euan Sutherland, the Co-op Group chief executive, has also paved the way for two further reviews.

One, led by Sir Christopher Kelly, will examine historical events at the mutual, while Lord Myners, the former City minister who recently joined the group's board, will assess the need for future corporate governance reforms.

Neither the FCA nor PRA would comment on Monday.

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Janet Yellen: Federal Reserve Boss Is Revealed

Federal Reserve vice chair Janet Yellen will be the new head of the world's most powerful central bank - the first woman to hold the position.

The 67-year-old was Barack Obama's choice and she earned cross-party support in the bitterly divided chamber.

"The American people will have a fierce champion who understands that the ultimate goal of economic and financial policymaking is to improve the lives, jobs and standard of living of American workers and their families," the President said in a statement.

"As one of our nation's most respected economists and a leading voice at the Fed for more than a decade - and vice chair for the past three years - Janet helped pull our economy out of recession and put us on the path of steady growth."

However, the 56-26 vote was still among the closest in the 100-year history of the institution.

"Americans should feel reassured that we will have her at the helm of the Fed as our nation continues to recover from the Great Recession," said Senate Banking Committee chairman Tim Johnson.

"Dr Yellen's leadership will also be critical as the Fed completes Wall Street reform rulemaking and continues to enhance the stability of our financial sector."

Dr Yellen was President Obama's choice

Dr Yellen will replace Ben Bernanke, who steps down on January 31 after eight years in the job.

She has built a strong reputation as an academic economist, and as a veteran policymaker at the Fed she is not expected to veer far from the central bank's existing policies.

She has a long-term interest in the impact of joblessness on the economy, and has helped keep Fed policy focused on bringing down the unemployment rate.

She has also been closely identified with the Fed's opening up of its policy thinking, with the central bank communicating what it sees in the economy and the expected direction of monetary policy far more openly than 10 years ago.

Her nomination was contentious even among some Democrats.

Joe Manchin of West Virginia had been "troubled by the unchecked quantitative easing policies" of the Fed.

"In light of recent news that the Fed will begin to taper its easing by $10bn a month starting in January, I now feel comfortable supporting vice chair Yellen's nomination," he said.

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Economy: BCC Poll Indicates Stronger Recovery

Fresh evidence has emerged that Britain's economic recovery is set to strengthen further.

The grounds for optimism came in a quarterly poll of 8,000 firms by the British Chambers of Commerce (BCC), raising expectations of continued increasing growth.

However, concerns persist over the ability of businesses to access finance so they can expand.

BCC director general John Longworth said: "It is a fantastic start to the new year with a very positive quarterly survey.

"Confidence is high and our members are resolute in their determination to take the recovery from being good to being truly great.

"Firms across the board believe they can create jobs, invest and export. But businesses have major ambitions and to be able to meet them more support must be provided.

"We must give companies the opportunity to get the finance they need to go out and trade in the world if we are to succeed in rebalancing the economy."

Official figures show gross domestic product (GDP) grew by 0.5 percent in the first quarter of 2013, rising to 0.8 percent in the second and third quarters.

The BCC expects, on the basis of its survey results, that the fourth quarter will have seen growth of 0.9 percent.

It shows most key indicators for the economy over the period better than pre-recession levels in 2007.

In manufacturing, it finds domestic orders, employment and employment expectations, and confidence for turnover and profitability are at all-time highs, allaying fears that third quarter growth was only temporary.

However, domestic sales and export orders in the sector fell back, though they remained high by historical standards.

Meanwhile, manufacturers' cash flow dropped, underlining the need to improve access to borrowing.

Inflation was also a major area of concern for businesses.

Services - which have led the recovery and represent three-quarters of the economy - saw record employment as well as exports.

David Kern, chief economist at the BCC, said: "It is clear that the UK recovery is likely to continue to strengthen in the short term.

"On the basis of these results, GDP growth in Q4 could well be around 0.9 percent, and higher full-year growth in 2013 and 2014 could follow."

However, he warned that risks from the eurozone could have an adverse impact on exports.

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Asian Markets Rattled Over Ongoing US Fears

Asia's markets fell on Monday in the first full day of trade in the new year, with Tokyo tumbling as the dollar and euro retreated from five-year highs against the yen.

The reaction comes after investors were given a mixed lead from Wall Street after Federal Reserve chief Ben Bernanke called for continued efforts to reinforce the recovery in the US economy.

Tokyo fell 2.35%, Sydney lost 0.47%, Shanghai dropped 1.80%, while Hong Kong lost 0.58%.

The only Asian bright spot was in Seoul, where the market rose 0.37%.

Japan's Nikkei started the year with heavy losses after surging 57% in 2013, with profit-taking adding to downward pressure, while the yen rebounded from recent lows.

The dollar and euro early last week hit highs against the yen not seen since October 2008, but they fell back on Friday in thin trade as many dealers stayed away after the holiday season.

"Tokyo stocks are overbought, and a break in the yen's fall, plus weaker futures are sure to result in some long-needed profit-taking after the December runup," SMBC Nikko Securities general manager of equities Hiroichi Nishi said.

"Hopes for a continued US economic recovery and longer-term dollar appreciation should keep sharp sell-offs well contained, however," he added.

The US currency stood at 104.43 yen on Monday in Tokyo against 104.85 yen in New York on Friday, and well off the mid-105 yen mark seen at the start of last week.

In the United States, Mr Bernanke's Friday speech to economists - as he prepares to leave office - called for continued efforts to make sure the world's number one economy keeps growing and unemployment carries on falling.

Highlighting that the US jobless rate fell from 10% in 2009 to 7.0% recently, Mr Bernanke nevertheless insisted: "Much progress has been made, but more remains to be done."

He added that the Fed's decision last month to cut its monthly bond-buying by $10bn (£6.1bn) to $75bn (£45bn) did not indicate any lesser commitment to maintain an easy-money policy "for as long as needed".

The Dow Jones index last Friday added 0.17%, the S&P 500 dipped 0.03% and the Nasdaq fell 0.27%.

Chinese shares extended their losses from last week on fears that the restart of initial public offerings after a year-long hiatus will cause a glut at a time with there is already concern about liquidity.

The 10-year bold yield for China has also risen above 4.7%. The Financial Times said the country's five-year yields are now at a 16-year high.

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December Online Sales Boom As Stores Struggle

Online stores saw a boom in December sales while high street retailers with low web presence struggled for customers, a new report suggests.

Figures from accountancy firm BDO showed December non-store sales leaping 31.1%, rising to growth of 55.7% in the week before Christmas.

However traditional high street sales dropped by 2.2% last month in an "underwhelming" Christmas for many retailers.

The online boom has been supported by research by independent retail consultant Richard Hyman.

He told the Financial Times that online purchases accounted for almost 20% of total retail sales - up 5% on 2012 - with non-food online sales accounting for around a third of all Christmas sales.

The figures showed the sales surge hoped for by many shops failed to materialise in the crucial trading period.

Like-for-like sales - excluding online trade - dropped by as much as 6.7% in the week to December 22.

BDO said even a 3.5% surge in the week to December 29 failed to boost the overall performance for the month which was down 2.2% on December 2012.

December 2012 had seen a 1.9% rise compared with the same month in 2011.

In a statement the accountancy firm said: "Following on from what was a solid month of trading in November, many retailers will have been left disappointed by a month of lacklustre consumer demand in the crucial Christmas trading period."

"Pent-up demand was expected to play a larger role as we moved closer to Christmas day but in reality it never fully took hold."

Bad weather amid the pre-Christmas storms hit trading for many, with fashion sales in particular suffering, down 4.6% last month.

Figures so far from major retailers have confirmed it was a mixed Christmas.

Debenhams issued a shock profit warning last week after suffering dismal trading and resorting to aggressive discounting.

But figures showed robust performances from fashion chain Next and department store rivals John Lewis and House of Fraser.

Marks & Spencer, which also slashed prices in the run up to Christmas, is expected to reveal the results of a tough season for the group when it reports on Thursday.

Data from Barclaycard highlighted a marked trend for shoppers to target discount days for the best deals, with the value of transactions falling by 3.5% last month as shops cut prices to lure in consumers.

BDO track sales across 85 mid-tier retailers with around 10,000 stores, showed while it was an "underwhelming Christmas for most", there were robust performances for some.

Closely watched sales figures from the British Retail Consortium are due on Friday, which will also shed further light on how the sector performed over Christmas.

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Osborne: We Need To Cut An Extra £25bn A Year

A further £25bn of cuts must be made after the next election if the Government is to eliminate the UK's deficit, Chancellor George Osborne has said.

Mr Osborne, who will set out his priorities for the next 12 months in a speech later this morning saying 2014 will be "the year of hard truths", indicated he would be looking to the welfare budget to make those savings.

The Chancellor also suggest he supported keeping generous benefits for pensioners such as winter fuel payments and free bus passes following some confusion on Sunday about whether David Cameron would pledge to keep them in the election run-up.

Mr Osborne said cutting the benefits for "wealthy pensioners" would save only "tens of millions" and that if he were looking to make savings, that would not be an area he would target.

Instead he told BBC Radio 4's Today programme he would instead target housing benefits for under 25s, saying it seemed unfair that hard-working 25-year-olds who could not afford their own homes were having to live with parents.

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The elderly are a key target group for the election because pensioners are more likely to turn out to vote and politicians will be eager to win their support. Mr Cameron kicked off an economic offensive on Sunday by committing to sustained rises in the state pension until 2020.

In his speech in Birmingham, the Chancellor is to warn that despite an improved economic outlook there is "still a long way to go".

He will suggest that Labour wants to take Britain back to "borrowing and spending and living beyond our means - and let the next generation pay the bill".

Mr Osborne will tell voters that tax cuts can only be afforded if further significant reductions are made in the public spending the revenues paid for.

"As a result of the painful cuts we've made, the deficit is down by a third and we're borrowing nearly £3,000 less for every one of you and for every family in the country," he will say.

"That's the good news. The bad news is: there's still a long way to go.

"We're borrowing around £100bn a year - and paying half that money a year in interest just to service our debts. We've got to make more cuts.

"That's why 2014 is the year of hard truths. The year when Britain faces a choice.

"Do we say 'the worst is over; back we go to our bad habits of borrowing and spending and living beyond our means - and let the next generation pay the bill'.

"Or do we say to ourselves 'yes, because of our plan, things are getting better. But there is still a long way to go and there are big, underlying problems we have to fix in our economy'."

But shadow chief secretary to the Treasury Chris Leslie said: "George Osborne should admit his policies have failed and led to a cost-of-living crisis.

"While millions of ordinary working people are worse off under the Tories, he and David Cameron are paving the way for yet another top-rate tax cut for millionaires.

"The reason more spending cuts are needed after 2015 is because his failure on growth and living standards since 2010 has led to his failure to balance the books.

"What we need is Labour's plan to earn our way to higher living standards for all, tackle the cost-of-living crisis and get the deficit down in a fairer way."

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Alicia Keys And BlackBerry Part Company

Grammy-winning Alicia Keys and BlackBerry are cutting ties just one year after the singer was hired as a 'creative director' for the struggling smartphone maker.

The Canadian company partnered with the singer-songwriter in January 2013 when it launched its much-delayed BlackBerry  Z10.

The relationship between it and Ms Keys got off to a bad start when early on some technology blogs alleged that a tweet from the star appeared to have been sent from an iPhone. 

The Z10 was BlackBerry's first full touch-screen phone but proved unpopular with customers who preferred to hold onto earlier models with their easy-to-use keyboards. And even the glamour of a worldwide popstar was not enough to tempt people to flock to the new model. 

In a statement BlackBerry thanked Ms Keys for her part in the year-long collaboration:

"We thank Alicia for her many contributions including providing creative direction for the BlackBerry Keep Moving Project which attracted more than 40m visits."

BlackBerry, which once dominated the corporate smartphone arena, has struggled in recent years to stop rapid market share losses to the likes of Apple and Samsung. 

In September, the smartphone maker announced it would slash 4,500 jobs worldwide in a desperate attempt to cut costs. And in December, it reported a loss of £2.7bn ($4.4bn) in its third quarter.

The company is now retreating from the consumer market to focus on businesses, governments and other large organisations.  

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House Prices 'Jumped 1.4% In December'

House prices in the UK rose by the biggest amount in more than four years in December, according to mortgage lender Nationwide.

It measured a 1.4% increase in the month - its best performance since August 2009 - leaving annual growth in the year to December at 8.4%.

The surge, Nationwide calculated, raised the average house price to £175,826 but London continues to outperform the rest of the country.

Prices in the capital are now 14% above their 2007 peak with the price of a typical London home at £345,186.

The North of England remains the weakest performing region though each region achieved growth in the three months to the end of December.

The latest data will further fuel concerns that the second phase of the Government's Help To Buy scheme is only likely to raise prices but it appears it is helping the construction industry that was hammered by the financial crisis.

Official figures have shown that new home-building boosted Britain's construction industry in December.

It reported its second-fastest month of growth in more than six years - although it was slightly lower than the previous month.

Construction PMI fell to 62.1 in December from November's reading of 62.6, the index's highest level since August 2007. 

And the upward trend looks set to continue. The number of people attempting to get on the property ladder using the Government's Help to Buy scheme has trebled in the last two months.

In November, figures showed in the first month of the scheme's launch more than 2,000 people had put in offers on homes and applied for a Help to Buy mortgage.

Prime Minister David Cameron has said the scheme led to 6,000 extra mortgage applications between October and December.

Separate figures from the Bank  of England showed the number of mortgage approvals at their highest level since January 2008 with almost 71,000 loans handed out in November. 

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Cameron's Pledge To Guarantee State Pensions

Voters 'Won't Back Tories' In 2015

Updated: 1:13am UK, Sunday 05 January 2014

More than a third of people who voted Conservative in the last general election say they would not vote for the party in the next election, according to a poll carried out by Lord Ashcroft.

The former Tory Party deputy chairman's findings revealed around half of the 'defectors' had switched allegiance to the UK Independence Party, with a fifth aligning themselves with Labour or the Lib Dems and a third undecided.

But in a more positive message for the Tories, 56% of those 'defectors' believe David Cameron is the best of the three main party leaders and say their preferred outcome in 2015 would be a Conservative majority.

The poll showed the 'defectors' significantly outweigh the number of new backers from other parties since 2010, making it more difficult for David Cameron to win an overall majority in 2015.

Commentary on the research, Lord Ashcroft said: "This research shows it is far from impossible for the Tories to win outright. But to do so they will need the votes of everyone who supported for them last time, plus practically everyone who is even prepared to think about doing so next time."

The poll found many voters in all camps gave at least a grudging recognition that the coalition had done well in dealing with the economy.

Mr Cameron and George Osborne were more trusted than Ed Miliband and Ed Balls to manage the economy in the country's best interests by a margin of 57% to 43%.

But it would be "hard" to persuade people that they were feeling the benefits of improved growth rates in their own lives given that the Government had no scope for large giveaways.

In fact a small majority 54% said they expected no improvement or a slight worsening in the economy over the next one or two years - with 46% anticipating a significant improvement.

The findings are from Project Blueprint: Phase 4, the latest round of Lord Ashcroft's research into the Tories' prospects of winning the next election outright.

The Tory peer said the Conservatives need to offer a clear direction to win the next election, not simply highlighting Labour's weaknesses and relying on progress achieved since 2010.

"Drawing a contrast with Labour and highlighting progress on welfare, immigration and the macro economy, important though they are, will only take the Tories so far," he said.

"It needs to be clearer what would be on offer under a new Conservative government. It is one thing to say don't turn back, but we also need to know where we're going."

The poll interviewed 8,053 adults online between November 4 and 10.

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Spain: Unemployment Figure Shrinks In December

Signs of a recovery may be starting to show in Spain as the number of people out of work fell by the biggest amount on record in December.

The number of people registered as unemployed shrank by 107,570 last month, leaving the country's total out-of-work figure at around 4.7 million.

During 2013 as a whole, the number dropped by 147,385 - the first full calendar year of decline since the financial crisis began.

Although the figure is likely to have been affected by extra people being taken on by retailers in the run-up to Christmas, it is seen as an indication of a wider improvement in the Spanish economy. 

The number of under-25s out of work also improved. Over the full year, 44,051 found work - with December alone accounting for 39,742 of the total. 

The Secretary of State for Employment, Engracia Hidalgo said the Labour Ministry was committed to improving the situation for Spain's young people, saying: "We hope to further reduce unemployment among our youth in 2014.

"These are encouraging figures which inspire us to continue working for the recovery and employment in 2014."

Across Spain's 14 regions the most improvement was seen in Andalucia, where 30,467 people found work in December and in Madrid which saw an 14,706 increase. However, only 209 people in Galicia found work in the month. 

The biggest employer was the services sector which took on 87,253 people and agriculture and fisheries, which employed 8,890.

A separate quarterly survey from the country's statistics body, the Instituto Nacional de Estadistica (INE) put the unemployment rate at 26% in the third quarter, the equivalent of six million people. The rate is second only to Greece in the European Union.

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