Its problems come as other major banks have raised upwards $50 billion or more in new capital and from asset sales to try and repair the damage from the subprime mess in the US, dud investments and the imploding UK housing minaret which threatens the entire economy.
Overnight,Taylor Wimpey, Britain's largest house builder, confirmed it is in talks with major investors to shore up its balance sheet through an emergency share issue worth a reported $1 billion, while announcing $1.4 billion in write-downs of its land holdings.
The rescue plan, which also includes a re-negotiation of its banking covenants, is in response to what the house builder described as a "significant downturn" in the UK housing market. That in turn has seen its shares lose 70% in value over the past year. "The board is now moving proactively to put in place an appropriate financial structure that will withstand what we expect will be a sustained weak market in the UK," the company said.
An announcement of the placing of new shares, which is expected to raise up to $1 billion from existing and new shareholders, is expected tomorrow when Taylor Wimpey is due to issue a trading update with all the gory details.
The troubled house builder said it had also agreed with its lending banks to relax the terms of its $4 billion revolving credit facility to focus on operating cash flow rather than pre-tax earnings.(It won't be making profits is what this means). The news came on a day when the extent of the housing slump in Britain was illustrated by the news that home prices have fallen for a ninth month in a row.
According to Hometrack, a UK property research firm, the average property has fallen 3.2% in value compared to a year ago. June is the ninth month in a row that prices have fallen, with June's price dropping 1% from May, according to Hometrack.
As well, official data from the British Land Registry showed that house sales had dropped 50%, compared with a year ago: central London the worse affected as the UK financial markets see thousands of jobs go, with more to come.
And figures from the Bank of England showed the extent of the collapse in the housing sector Mortgage approval numbers collapsed in May to be down 28% from April and a huge 64% from May 2007.
That means new mortgage lending has fallen to the lowest level since the Bank's data series began in 1999, and well below analysts' forecasts. With reports like that on UK house prices and mortgages it's no wonder UK consumer confidence dropped in June to the lowest level since 1990, when Margaret Thatcher was fighting her poll tax debate.
UK reports say the confidence gauge is only one point higher than in March 1990, on the eve of the country's last recession. A big UK car dealer, Pendragon, has cut earnings estimates and will now manage itself for cash after car sales fell 9.5% in May. That lack of confidence and falling retail and property sales is seeing media revenues hit hard.
Trinity Mirror, which owns the Sunday and Daily Mirror titles and the Daily Record in Scotland warned last night that a sharp fall in advertising revenues in May and June will see profits down 10% for the full year, and possibly more. The company said the situation could worsen because of "a very uncertain economic outlook" and it was thinking of cutting its dividend and stopping a share buyback.
That's much more dramatic an impact from the slowdown than we are seeing in the Australian media, except for the likes of the Ten Network, which has warned of a 10% drop of its own in 2008 profits. And Eurozone inflation hit 4% in may according to a preliminary report overnight, double the target of the European central bank and above forecasts from the market.
The figure almost certainly means the ECB will lift interest rates this week, which will weaken the US dollar and other currencies, such as sterling. Meanwhile a second western economy is on the verge of recession. New Zealand's economic growth contracted in the March quarter and could fall again in the quarter just finished.
Now Ireland could follow as the country's Economic and Social Research Institute (ESRI), forecasts a slowdown - the first since 1983 - and a return to net emigration. The institute expects that the economy will contract by 0.4% this year after growing by 4.5 in 2007.
The Institute claimed that 20,000 would have to emigrate over the next year to prevent unemployment rising sharply to more than 8%. Like Britain a construction boom and surge in home prices have powered Ireland's boom, and are now powering its slump.
Irish house prices have fallen by an estimated 15%, with no end in sight to the plunge. The drop is forecast to continue to well into 2009 (like the US and Britain). Retail sales fell 3% in April: they are weaker in the US, Europe, Britain, NZ and of course, Australia.
