PRESS DIGEST - Financial Times - July 6

Financial Times

BANKS REINVENT SECURITISATION TO CUT CAPITAL COSTS

In the latest sign that financial market innovation is far from dead, investment banks including Barclays Capital (BARC.L: Quote, Profile, Research) and Goldman Sachs (GS.N: Quote, Profile, Research) have invented schemes to reduce the capital costs of banks' risky assets. The schemes, which Goldman refers to as "insurance" and which BarCap has dubbed "smart securitisation", use different methods to cut capital allocation costs by between 10 and 50 per cent. The new mechanisms have some similarities to discredited structured products such as collateralised loan obligations, which have been widely blamed for helping to fuel the credit crisis. However, bankers argue that the new methods are much more transparent and less risky than their disgraced predecessors.

MANDELSON WARNS OF THREAT TO SINGLE MARKET

Business Secretary Lord Mandelson has warned that the European Union risks learning the wrong lessons from the financial crisis and may inadvertently threaten the success of both the single market and the City of London. The former EU commissioner believes that some European politicians are using the credit crunch to call for weaker competition rules and a clampdown on the financial services industry. Mandelson said that although he agreed with the temporary loosening of EU competition rules in order to help struggling companies survive the recession, he feared that the changes may become permanent. That would "create a threat to the single market", he claimed.

PRESSURE ON BANK GOVERNOR TO CALL OFF 'SERMONS'

Alistair Darling is to publish a wide-ranging paper on financial regulation on Wednesday in which he is expected to call on Bank of England governor Mervyn King to stop "giving sermons" and start making detailed policy proposals. The Chancellor has not been convinced by King's argument that the Bank needs powerful new tools to deliver financial stability, including the right to intervene to rein in struggling banks. Darling will instead argue that the Bank can make better use of its existing powers, particularly its right to sound the alarm if it notices dangerous imbalances building up in the financial system. The Chancellor will recommend that the Bank delivers explicit policy recommendations when delivering its twice-yearly financial stability report.

GRADUATES FACE STARTING SALARY FREEZE

A study by the Association of Graduate Recruiters has found that graduates' starting salaries will not rise this year, making 2009 the first time in more than three decades that starting wage growth has stalled. The report found that average starting salaries are now 'stuck' at 25,000 pounds, with graduate vacancies also falling by 25 per cent in the past year. The Association warned employers that although vacancies have now become easier to fill, "intense competition is causing erratic graduate behaviour in some cases, with candidates applying for jobs they would not normally have considered or are not passionate about".