Crisis deals under pressure, no let up for economies

A man uses a laptop next to a stock quotation board outside a brokerage in Tokyo November 4, 2008.
REUTERS/Toru Hanai

By Jeremy Gaunt and Alex Richardson

LONDON/SINGAPORE (Reuters) - A number of deals designed to cure the global financial crisis were in danger of unraveling on Wednesday, with losses mounting at banks and economies deteriorating.

The International Monetary Fund withheld official backing for a $6 billion bailout plan for Iceland, the Financial Times reported, putting loans to the North Atlantic island nation at threat.

Some of British banking giant Barclays' biggest shareholders have threatened to vote against a planned 7 billion pound ($10.83 billion) capital raising unless it improves the terms of the deal, British newspapers said.

The latter follows a row over the crisis-driven planned purchase of British lender HBOS by Lloyds TSB with leading banking figures arguing a more competitive deal should be sought.

Aides to U.S. President-elect Barack Obama, meanwhile, were playing down reports of tension with the Bush administration over help for the stricken car industry.

A feud within Japan's cabinet over whether rich people should get payouts as part of a stimulus package looked set to be put aside after delaying the plan for weeks.

Questions are also beginning to be asked about just how much help governments can give.

"The U.S.' financial resources are already stretched and a flood of news demands may overwhelm a government already staring down at a record budget deficit next year," UBS economists said in a note.

Financial markets were rocked again under the combined pressure of a global economic downturn and the worst financial crisis in 80 years.

European shares rose 1.6 percent after losing more than 4 percent on Tuesday, reflecting the sharp volatility currently infecting investors.

There were more corporate profit warnings with General Motors shares falling on Tuesday to levels not seen since World War Two.

"Whether it's economic indicators or company news, it's just too awful," said Takashi Ushio, head of the investment strategy division at Marusan Securities in Tokyo.

DECLINE AND FALL

The financial industry showed more pain with Dutch group ING posting its first-ever quarterly loss as impairments on stocks and bonds, counterparty losses and property writedowns ate into its income.

ING Group NV had projected the loss in October before agreeing to a 10 billion euros ($12.7 billion) cash injection by the Dutch government to shore up its core capital.

Its net loss for the third quarter was 478 million euros ($603.4 million), after writedowns totaling 1.5 billion euros. ING posted a profit of 2.3 billion euros a year earlier.

Insurer Swiss Life said third-quarter premium volumes fell 11 percent to 3.075 billion Swiss francs ($2.61 billion) and warned it would not meet its full-year net profit guidance.

This came against a background of continuing decline in world economies.

China's retail sales data on Wednesday pointed to slowing consumption and the World Bank said more countries were seeking its help. The head of the Organization for Economic Cooperation and Development, Angel Gurria, said there was room for further interest rate cuts in the stagnating euro zone.

World Bank President Robert Zoellick said global trade may drop next year for the first time in more than a quarter of a century as the worldwide credit crisis cuts into trade financing.

"It is our estimate that trade could actually fall, not grow more slowly or have growth fall, but actually fall next year, for the first time since 1982," Zoellick said in an interview with Reuters ahead of a meeting of world leaders.

Zoellick said the bank expected its lending to increase to $35 billion this year from $13.5 billion last year, adding that countries such as Mexico, Indonesia and Colombia were tapping its contingency financing fund amid worries about access to credit.

Investors, meanwhile, were looking to a summit of world leaders in Washington on Saturday for solutions.

President-elect Obama, however, is steering clear of the meeting.

"I think he wants to have a free hand after the inauguration," Dale said. "If he gets too closely associated with the summit, he might find himself associated with views with which he might not necessarily agree," said Reginald Dale, a scholar at the Center for Strategic and International Studies.

(Reporting by Reuters bureaus worldwide)

(Editing by Elizabeth Piper)