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Nov 18, 2008

Japan warns of Longer Slump

Major world banks showed the unrelenting strain of economic crisis on Tuesday, with Britain's Barclays offering funds to quell shareholder anger and profits in Japan's largest bank tumbling 64 percent.

Japan's economy minister said recession in the world's second-biggest economy could last longer than feared, reflecting a generally darker view now permeating markets.

The crisis, which began with a collapse in the U.S. housing market undermining major financial institutions, also showed further signs of hitting industry and retail.

Barclays, facing shareholder criticism over a decision to take 5.8 billion pounds from Middle East investors on terms tougher than the British government was offering, followed Swiss bank UBS in announcing it was cancelling 2008 bonus payments to executives.

It also said Qatar Holding LLC and Sheikh Mansour Bin Zayed Al Nahyan would each make up to 250 million pounds ($372.9 million) of reserve capital instruments available to existing shareholders in the bank in a book building process.

Barclays, one of the four biggest UK banks, had declined to accept any capital from the government under a 37 billion pound bailout, wary of conditions imposed on their operations.

Citigroup Inc, the second biggest U.S. bank, revealed plans on Monday to cut 52,000 jobs by next year, the second-largest corporate lay-off plan in history.

The crisis has taken a firm hold in Asia with even the Chinese economy, power house of the region, slowing markedly.

Japan's biggest bank, Mitsubishi UFJ Financial Group, announced first half profit had tumbled 64 percent and stuck to its recently lowered full-year forecast, hit by recession at home and losses on its stock portfolio.

HSBC added to the employment gloom, saying it would cut a further 500 staff in Asia, mostly in Hong Kong, due to deteriorating economic conditions and caution about next year.

And Australia's biggest investment bank, Macquarie Group, said it was heading for its first fall in annual profit in 17 years.


Once thought to be relatively immune to the global credit crisis, Mitsubishi UFJ and other Japanese banks are now scrambling to raise cash, hurt by the weaker economy and heavy exposure to the domestic stock market.

In a further sign of the crisis spreading to the broader economy, threatening industry and jobs, major British retailer John Lewis Partnership's department store sales fell 14 percent year on year, according to the Daily Telegraph newspaper.

Many British retailers are suffering as consumers cut back on spending as house prices fall, unemployment grows and the country enters recession.

Taiwan said it would issue shopping vouchers worth T$3,600 ($108) to its citizens. Premier Liu Chao-shiuan said the plan was expected to contribute 0.64 percent to GDP.

In Washington, lawmakers argued over a proposal by Senate Democrats for a $25 billion bailout loan for the auto industry to stave off an even wider economic collapse.

"The reason people think failure could be cataclysmic is that there are so many companies that are tied to the auto industry," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co.

Automakers have been hit by a collapse in consumer spending, triggered by a housing crash and worsened by rising unemployment. U.S. officials say even with major stimulus measures in place, it will take considerable time for the U.S. economy to recover.

"There's going to be stress in the capital markets for a number of months here because housing prices are still declining and I think it's moved beyond housing," Treasury Secretary Henry Paulson said at a conference.

Shares fell, extending Monday's losses in most world stock exchanges, as one of the biggest job cut plans in history at Citigroup doused expectations for a financial sector recovery in 2009.

European shares dropped nearly two percent in early trade. Japan's Nikkei shed 2.3 percent.

Source : Reuters
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