Fed up

US Federal Reserve chairman Ben Bernanke announced a 75 basis points cut in
interest rates to 3.5% on 22 January.

Commentators were shocked by the Fed’s reaction, unprecedented for coming a
week ahead of the scheduled rate-setting meet, and because the last time it made
emergency cuts was in the days following the 9/11 attacks. Moreover, it has been
26 years since such a big cut.

The Fed pointed to tightening credit markets, a housing slump and rising
unemployment ­ but no one was left in doubt as to what the message was: that
recession is too close for comfort.

Bank of England Governor Mervyn King, speaking at an Institute of Directors
dinner in Bristol the evening the Fed made the cuts, indicated no copycat move
from the BoE and said that he thought it was the job of the markets to correct
themselves, not central banks. But we’ll soon see if the UK follows the US off
the contagion cliff.

Con Bonds?
Alistair Darling is waiting on the FSA to approve his plan to convert £25bn in
Northern Rock debt from the Bank of England, into bonds that the stricken
mortgage lender hopes will guarantee a quick sale. Northern Rock shares rose a
whopping 46% on news of the offer ­ though were still about 90% below their
value at the start of the year.

Davos doom
The US is definitely in for a long, hard recession, a panel of world-leading
business heads decided at the annual Davos jolly in Switzerland. The BBC quoted
New York-based economist Nouriel Roubini saying a “severe recession” could last
as long as a year. Stephen Roach, chairman of Morgan Stanley Asia, concurred and
thought that Asia, especially China, would be hard hit by the slump.

Eastern promise
Gordon Brown attended the launch of the London Stock Exchange’s new office in
Beijing as part of his drive to attract more Chinese business to the UK. The LSE
is already home to more Chinese companies than any other major exchange
globally. The office is inside Beijing’s Winland International Finance Centre,
its logical home with neighbours such as HSBC, Goldman Sachs, UBS, and shortly a
branch of the Tokyo Stock Exchange.

Fitch likes Fair
Ratings agency Fitch has said it expects fair value management to remain the
central accounting focus for analysts and investors in 2008, in light of the
unravelling fallout from the credit and liquidity crunches on sub-prime
mortgage-related assets, it said. The firm was to publish a report on fair value
accounting as we went to press.

Enron evils
A lawsuit by investors seeking to recover around £40bn from Merrill Lynch,
Barclays and Credit Suisse First Boston, following the Enron collapse, had their
case rejected by the US Supreme Court, after an earlier ruling that limits the
right of shareholders to pursue third parties involved in deals that involved
the bankrupt energy firm.

Beyond pensions
BP will not make any contributions to its pension scheme in 2008 because, under
its scheme rules, it is permitted to stop making payments once funding to cover
liabilities is more than 115% ­ it is now 135%, the company says. BP is the
second large oil firm to make such a move, following Royal Dutch Shell.

TECHNICAL UPDATE
Taxation
The government had another stab at taking the pain out of capital gains tax by
offering an “entrepreneurs’ relief”, which effectively reduces the 18% CGT rate
announced in the last pre-Budget report to 10% for the first £1m of lifetime
capital gains. The new rates are expected to come into effect from April 2008.

www.hm-treasury.gov.uk

The House of Lords ruled that the three-year time bar on Condé Nast’s
underclaimed VAT should be disallowed under EU law. The Law Lords said that the
1995 UK time limit regulations had been introduced without transitional
arrangements. DLA Piper tax disputes partner Hartley Foster says that, as total
claims from other litigants against HM Revenue & Customs may amount to £1bn,
the government is likely to act swiftly. Taxpayers now have “a small window of
opportunity” to submit claims to HMRC.
www.dlapiper.com/uk

Listing rules
A Financial Services Authority consultation paper on the London Stock Exchange
Listing Rules suggests that it might be appropriate for international companies
with a primary listing in London to abide by the same Combined Code ‘comply or
explain’ requirements as UK companies and that they should also have to comply
with a pre-emption rights regime equivalent to that followed by UK companies
under UK company law.
www.fsa.gov.uk