By Ruth Pitchford
LONDON (Reuters) - Britain offered a multi-billion pound credit line to small businesses on Wednesday amid increasing evidence that global companies from banks to carmakers are struggling to ride out the worst economic crisis since the 1930s.
The government's 20 billion pound working capital scheme will guarantee existing loans to small and medium-sized companies. It met a sceptical response as policymakers and analysts questioned whether official efforts would make banks lend more freely and enable companies and consumers to keep spending.
Shares in Europe's biggest bank, HSBC Holdings , fell 6 percent in early trading after analysts said it was likely to halve its dividend and may need to raise up to $30 billion (20.6 billion pounds) in a rights issue.
HSBC has not had to raise capital during the financial crisis, unlike most of its big rivals, due to its historically strong capital and liquidity. But it is facing increasing scrutiny over any potential need to raise funds as the economy worsens.
Citigroup moved Tuesday towards dismantling what was the world's biggest financial services group, as it agreed to merge its Smith Barney brokerage with Morgan Stanley's wealth management business, and may isolate toxic debts in a "bad bank."
GOOD BANK, BAD BANK
Many global banks remain lumbered with high-risk debt of little or uncertain value after a long-running credit boom went bust in August 2007.
Governments around the world have already pledged hundreds of billions of dollars to shore up bank capital, cut taxes and fund projects that will create jobs, while the U.S. central bank has effectively moved towards quantitative easing where enough money is pumped in to keep official interest rates near zero.
But many say more still needs to be done to break the cycle of lending cuts and spending cuts. "More capital will be needed, quantitative easing and the inception of a 'Bad Bank' for the sector to dump its toxic debt into seems inevitable," David Buik, partner at BGC Partners in London, said of the UK's latest scheme.
U.S. Federal Reserve Chairman Ben Bernanke warned on Tuesday that fiscal stimulus alone would not overcome the global economic crisis as President-elect Barack Obama pledged more control over a remaining $350 billion in bailout funds.
U.S. retail data for December, due later Wednesday, was expected to confirm a struggling economy and shrinking consumer spending.
In the automotive sector, Chrysler, the third biggest U.S. carmaker, is in talks to sell key assets to Renault-Nissan and auto supplier Magna as it rushes to restructure after taking $4 billion in U.S. government loans, according to people with knowledge of the discussions.
British lawmakers said their proposed credit refinancing scheme would help kickstart an economy ravaged by a global credit crunch.
"We know that some companies are struggling to secure the finance they need, not because of any failure in their business but due to the tougher credit conditions," Business minister Peter Mandelson said.
The plan is the latest attempt by Prime Minister Gordon Brown, who is lagging in the polls and must fight an election within 18 months, to revitalise the economy, and follows a job initiative Monday.
After years of uninterrupted growth, the British economy looks certain to have gone into recession at the end of last year for the first time since 1992 and economists predict falling output and hundreds of thousands job being lost in 2009.
Punch Taverns, the biggest pub operator by number of outlets, said Wednesday that even beer sales had taken a double-digit fall by volume in the past few months.
CITIGROUP
U.S. giant Citigroup, which has received $45 billion from the government's bailout and is expected to report a big fourth-quarter loss, is planning to adopt the equivalent of a "good bank, bad bank" structure, a person familiar with its plans said.
The plan envisions focussing on corporate, investment and retail banking and keeping a slimmer trading business, while moving unwanted assets and businesses such as complex debt to a separate structure, the person said on condition of anonymity.
Citigroup's "bad bank" would have about $600 billion of assets, close to one-third of Citigroup's balance sheet, which could eventually be sold or spun off, the person said.
(Additional reporting by Steve Slater, Alison Leung, Kate Kelland and Paul Hoskins in London; Dan Wilchins and Joseph A. Giannone in New York, Poornima Gupta, Soyoung
Kim and Kevin Krolicki in Detroit; editing by Guy Dresser)
