Banks appearing in the news has become commonplace in the past year or so. Everyday, there has been something newsworthy happening in the banking sector, whether in the UK or abroad. A recent development in this sector is Barclays agreeing to sell its fund management division, BGI, to Blackrock for £8.2 billion. Barclays says that there are strategic reasons for the sale, which undoubtedly add to the 8.2 billion other reasons. This deal will put the bank in a strong position to make acquisitions next year in creating the world’s biggest asset manager. It will also allow Barclays to weather any further storms on the horizon. The articles below look at recent developments.
Blackrock in £8.2 billion Barclays deal BBC News (12/6/09)
Blackrock and a hardplace The Economist (12/6/09)
Bob Diamond: The builder of Barclays Telegraph, Louise Armitstead (13/6/09)
Barclays offloads fund management business BGI to Blackrock for £13.5 billion Telegraph, James Quinn (12/6/09)
Inside Look: Blackrock buys Barclays fund unit for $13.5 billion Bloomberg, youtube (12/6/09)
Sovereign wealth funds back BlackRock move to acquire Barclaysd Global Investors Telegraph, Louise Armitstead, James Quinn (12/6/09)
Blackrock targets Barclays firm BBC News (8/6/09)
Questions
- What are the ‘strategic reasons’ behind Barclays’ decision to sell its fund management division?
- The Blackrock and a hardplace article talks about the benefits of economies of scale. What does it mean by this?
- What are the advantages and disadvantages of combining fund management with banking and creating such a large business?
- Given that Barclays’ fund management, BGI is a successful part of its business, does their agreement to sell it put them in a stronger position?
- What will be the likely impact of this deal on the economy? Consider who will be (a) the winners and (b) the losers.
Recent evidence from the Institute of Economic and Social Research shows that the UK economy grew in April and May and that 2009 Quarter 2 figures will also show a rise in output. Although annual growth in GDP will still be negative, as the previous three quarters were all negative, recent growth suggests that the recession might have ‘bottomed out’ and that recovery is beginning.
Of course, it’s early days to tell whether these are real ‘green shoots’ or whether the economy will slide back into negative growth once more, but confidence is returning. One sign of this is the recent appreciation of sterling (see). The following articles look the rise of the pound, why it is occurring and whether the green shoots will flourish or wither.
Pound hits 2009 high against euro BBC News (11/6/09)
Sterling: what’s the outlook now? Telegraph (11/6/09)
Sterling hits year’s high versus euro ThisIsMoney (11/6/09)
Sterling leaves euro in its wake on hopes of UK recovery The Herald (11/6/09)
Jeremy Warner: Recession may be over but not the pain Independent (11/6/09)
Taking stock of the different economic signals Times Online (11/6/09)
Questions
- Why has the pound been appreciating?
- What are the implications of an appreciation of the pound for the UK economy?
- Why is the dollar likely to fall as the prospects for the world economy brighten?
- What evidence is there that the UK economy is now beginning to recover? What will determine whether or not the recovery will be sustained?
With the world economy in recession, major exporting countries are suffering more than many, especially exporters of high-quality manufactured products, many of which have a high income elasticity of demand. Germany, the world’s largest exporter, has been particularly hard hit. In the year to April 2009, the value of German exports fell by 28.7 per cent. The following articles look at the data and some of the explanations.
German exports in April 2009: –28.7% on April 2008 Destatis (9/6/09)
German exports plunge amid economic slowdown DW-World (9/6/09)
Weak German economic data dash early recovery hopes Monsters and Critics (9/6/09)
German industry output disappoints, falling 1.9 pct Guardian (9/6/09)
See also this video on the recession in the EU: EU recession ‘deeper than expected’ BBC News (15/5/09)
Questions
- Why have German exports fallen considerably more than German GDP? How can the accelerator theory help to explain the fall in German exports?
- If economic sentiment recovers in Germany, how will this affect (a) aggregate demand; (b) imports; (c) exports?
- Find out what has happened to the euro exchange rate index and assess whether movements in the euro have contributed to Germany’s export performance (see for example the Bank of England Statistical Interactive Database).
The pound has been rising against the US dollar recently. And as the dollar has fallen, so the prices of various commodities, such as gold and silver, have been rising. So what are the reasons for these currency and commodity price movements? The simple answer is that they merely reflect changes in demand and supply. But why have demand and supply been changing? Are there changes in the underlying economic fundamentals, or do they largely reflect speculation in times of uncertainty and resulting market overcorrection? The following articles address these questions.
Sterling rises on hopes of recovery Financial Times (4/6/09)
Jeremy Warner: Dollar weakness is a sign that things are on the mend Independent (4/6/09)
Stephanie Flanders Blog: What goes down… BBC News (3/6/09)
Dollar on the rack International Business Times (1/6/09)
Sterling hits six-month high against the dollar Times Online (29/5/09)
Exchange rates: What next for the pound? This is Money (2/6/09)
Gold News BullionVault (3/6/09)
The Top 10 Reasons to Hold Gold, Bar None! The Motley Fool (2/6/09)
Questions
- Explain why the pound been rising strongly against the dollar.
- What is likely to happen to the exchange rate of the pound against the dollar and the euro over the next few months?
- If it were possible to predict the future exchange rate today, what would happen to the exchange rate today?
- Why might it be a good time to buy gold? Why might it be too late?
Imagine putting together a dream team of economists to tackle the current recession. Who would you choose? Larry Elliott, the Guardian’s economics editor considers this game of ‘fantasy economics’ in the linked article below. In the process, he makes a number of criticisms of economists for saying little about what caused the current crisis and how such crises could be avoided in the future.
As students studying economics you might want to defend economists against this attack. After all, virtually every time you turn on the radio or television or open a paper, there are economists explaining what has happened and what should be done about it. So see if you can mount a defence against this attack – and maybe put together your own dream team of economists!
It’s a funny old game: where is the dream team of economists to tackle the slump? Guardian (1/6/09)
Profiles of many the economists referred to in Larry Elliott’s article can be found at the History of Economic Thought website. You can access this from the Sloman Hot Links tab above and then click on site C18.
Questions
- Explain why economies with deregulated financial markets are likely to experience macroeconomic instability (‘boom-bust cycles’).
- What are the benefits of studying perfectly competitive markets and general equilibrium theory?
- Write a brief defence of the use of mathematics in economics.
- Does experimental economics allow economists to take a ‘more nuanced and relevant approach’ to studying economic behaviour and devising appropriate policy?