City Republic: Recession, rate cuts and Ryanair goes to New York

LONDON - New president faces recession worries, UK sweetens bank bail-out deal, and Ryanair takes on BA and Virgin with a cut-price transatlantic route.

Housing is big challenge for new US president

Tomorrow we get a new president of the United States although we may not know who it is until Wednesday.

If, as seems likely, it's to be Democrat Barack Obama we might have expected turbulent stock market times as investors reacted to the prospect of higher taxes and more public spending.

But the financial crisis has forced the Republican Bush administration into the most interventionist economic policy seen in the US since the 1930s under Democrat Franklin Roosevelt, so it will be more of the same under Obama.

With tax breaks for what he calls the "middle classes", everybody else's working class.

The acid test for whoever is successful will be recession and getting the housing market moving again.

Last week JP Morgan, which seems to be acting as the unofficial bank of the US Treasury, announced that it was going to vary the terms of some of its mortgages to cut repossessions and try to write some value back into its mortgage book.

Banks and governments across the world, including the UK, will have taken note.

How big will the next rate cut be?

Most investors are betting that the Bank of England and the European Central bank are preparing rate cuts of half a point this week, bringing UK rates down to 4% and the ECB rate to 3.25%.

But some pundits are calling for a full point, pointing to the snowballing recession and the gap between 1% US rates and Europe.

There's no guarantee that any such cuts would be passed on to consumers of course, but they would help the banks rebuild their capital (the precursor to more lending) and also reduce the Libor interbank lending rate (ditto).

One of the main arguments for the bigger cut would be that that would force the banks to pass at least some of it on.

Lloyds TSB presses on with HBOS bid

Lloyds TSB said this morning it will go ahead with its bid for Halifax Bank of Scotland, which may lead to the Government injecting £17bn into the merged bank thereby taking a 43% stake.

In fact this is unlikely as shareholders seem to be rediscovering an appetite for banks, even the benighted HBOS which is apparently interesting a "European financial institution", which may make a counter-bid.

This is according to Scottish businessman Jim Spowart who used to run HBOS' Intelligent Finance online operation.

Not many candidates spring to mind, it has to be said. Santander of Spain has already snapped up all of Alliance & Leicester and Bradford & Bingley's loan book, leaving maybe one of the French banks as the likeliest candidate.

Also today Royal Bank of Scotland is expected to announce that it has written off a further £3bn as it prepares its own offer to shareholders.

Whatever happens with the rights issues the Government will subscribe for a big chunk of preference shares and this will give it some measure of control.

Chancellor Alistair Darling is due to reveal today details of the Government's 'arm's length' agency to handle these investments.

The big shareholders in these banks are keen to keep the Government's influence over things like dividends and lending policies to a minimum so it will be interesting to see how many shares they buy.

They will have been reassured by Lloyds CEO Eric Daniels' comments today that the Government had relaxed its restrictions on paying dividends (Lloyds HBOS can now pay one next year if it pays back the preference shares) and job losses.

So sentiment towards bank shares is definitely changing as the bail-out seems to have worked and interest rates are certain to fall.

Venture capital makes long overdue return

Private equity outfit Carlyle Group is raising €530m (£419m) for its new Carlyle Europe Technology Fund that, amongst other things, plans to invest in media companies.

It says it's looking for investments in companies between €20m and €200m in size.

A year or so ago a big operator like Carlyle wouldn't have looked at operations on this scale (unless it was a foolish government giving away an undervalued business), but the world has changed and the big battalions, with major company buyouts too expensive to finance, are now looking at venture capital once more.

Which should be good news for media entrepreneurs.

Ryanair makes transatlantic bid

Profits at Ryanair may be falling (down 47% to £169m in the six months to September) but ebullient boss Michael O'Leary says that the future is set fair if oil stays at or below $80 a barrel (it's currently inching up in the $60 range).

He's backing his judgement by promising to buy 50 planes from cash-strapped rivals and starting services to America, including New York, Boston and Florida, next year.

Economy fares will start at €10 he says (plus taxes of course) while business class will be "very expensive."

In this era of business class flat beds across the Atlantic it will be interesting to see what goodies O'Leary comes up with for the business passengers dipping deep into their wallets.

He's already jokingly (we think) suggested some options that we won't describe in a family-friendly column.

But it's another worry for British Airways' Willie Walsh and Virgin's Richard Branson.

Stephen Foster is a former news editor of Campaign, former editor of Marketing Week and Evening Standard ad columnist. He is a partner in Editorial Partnership and writes the blog and Politics of the Media for Brand Republic.

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