Cameron's Austerity Plan Makes U.K Debts World Beater

Bloomberg

 

British companies are beating the world in the bond market as investors bet Prime Minister David Cameron’s efforts to tame the budget deficit will preserve the U.K.’s top credit rating.

U.K. corporate debt denominated in all currencies returned 3.25 percent last month, the most in a year and the best among the 10 countries making up almost 90 percent of the $6.2 trillion Bank of America Merrill Lynch Global Broad Market Corporate Index. Bonds of Banco Santander SA’s Abbey National unit and Tesco Plc, the nation’s largest supermarket chain, led the gains, returning as much as 12.7 percent.

Cameron’s coalition government is pushing cuts and austerity measures worth 30 billion pounds ($46 billion) a year to shrink the U.K.’s 11 percent deficit to 2.1 percent by 2015. Investors are speculating this will preserve Britain’s AAA credit rating without slowing the economy too much that it curbs the ability of companies to meet their debt payments.

“Investors are happy with the measures taken by Cameron,” said Christian Weber, a senior credit strategist at UniCredit SpA in Munich. “The perception has spread that it’s better to actually tackle budget deficits than just keep spending and spending and spending, because that limits your ability in the future to help your economy stabilize.”

The extra yield investors demand to hold U.K. corporate bonds instead of benchmark government securities narrowed 4 basis points to 237 basis points in August, or 2.37 percentage points, compared with an increase of 6 basis points for U.S. company debt, according to Bank of America Merrill Lynch’s global index. Spreads widened an average 4 basis points across all countries in the index last month and were unchanged yesterday at 180 basis points. Yields averaged 3.558 percent.

Government Bonds

U.K. government bonds are also rallying. They returned 4.7 percent last month, second only to Denmark’s 4.75 percent, according to the Bank of America Merrill Lynch Global Sovereign Broad Market Plus index.

Elsewhere in credit markets, the cost of protecting corporate bonds from default in the U.S. fell after a report showed companies added more jobs than forecast in August. Auto- parts supplier Continental AG sold Europe’s first high-yield bond in a month and Citigroup Inc. will hold a meeting next week with investors to discuss the financing for the acquisition of Tomkins Plc.

Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 1.25 basis points to a mid-price of 105 basis points as of 11 a.m. in New York, the lowest since Aug. 10, according to index administrator Markit Group Ltd.

August Payrolls

The measure fell after private payrolls that exclude government agencies climbed 67,000, after a revised 107,000 increase in July that was more than initially estimated, Labor Department figures in Washington showed. The median estimate of economists surveyed by Bloomberg News called for a gain of 40,000. Overall employment fell 54,000 for a second month and the unemployment rate rose to 9.6 percent as more people entered the labor force.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 2.5 basis points to 106, and the Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 8 basis points to 483, according to Markit.

Continental Sale

The indexes typically fall as investor confidence improves. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Continental, Europe’s second-largest auto parts supplier, sold 1 billion-euros ($1.3 billion) of seven-year bonds. The debt from the Hannover, Germany-based company priced to yield 7.625 percent, compared with 8.75 percent on five-year securities it sold on July 9, according to data compiled by Bloomberg.

Banco Bilbao Vizcaya Argentaria SA and Telefonica SA also sold bonds, putting this week on track to be the highest for European debt issuance in a month, Bloomberg data show. Sales of corporate and covered bonds total 15 billion euros this week, the most since the period ended July 30 and up from 12.6 billion euros last week.

Tomkins Financing

Citigroup will hold a meeting Sept. 8 at 10 a.m. New York time for the Tomkins financing, said a person familiar with the transaction, who declined to be identified because the talks are private.

Canada Pension Plan Investment Board and Onex Corp. have agreed to buy London-based Tomkins, a maker of auto parts and building materials, for 2.89 billion pounds, according to a July 27 statement. They will fund the acquisition with $3 billion of underwritten debt.

Leveraged loan prices rose for the second day to the highest since Aug. 23. The Standard & Poor’s/LSTA US Leveraged Loan 100 Index increased 0.09 cent to 89.51 cents on the dollar. Loans have returned 4.1 percent in 2010, based on the index, which tracks the 100 largest dollar-denominated first-lien leveraged loans.

Most-Traded Bonds

Bonds from Fairfield, Connecticut-based General Electric Co., the world’s biggest maker of jet engines, were the most actively traded U.S. corporate securities by dealers, with 87 trades of $1 million or more, Bloomberg data show. The most active in junk bonds was Anadarko Petroleum Corp., the U.S. partner in BP Plc’s damaged Gulf of Mexico well, with 78 trades.

Junk bonds and leveraged loans are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P.

Bonds of Apache Corp. declined by the most since they were issued after an explosion aboard a Mariner Energy Inc. platform in the Gulf of Mexico yesterday.

Apache’s $1.5 billion of 5.1 percent debt due in 2040 declined 3 cents to 98.9 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The Houston-based energy company sold the bonds on Aug. 17 at 98.936 cents on the dollar, Bloomberg data show.

In emerging markets, the yield spread narrowed by 4 basis points to 281 basis points, according to index data from JPMorgan Chase & Co. The spread has decreased 15 basis points since Aug. 30.

Best Performers

French bonds were the second best-performing notes of the 10 countries after U.K. company debt gaining 2.46 percent, with Canadian securities third at 2.38 percent, according to Bank of America Merrill Lynch indexes. The global average was 2.14 percent. For the year, Britain’s company debt has handed investors 9.56 percent, overtaking U.S. corporate notes, which returned 9.55 percent.

Abbey National’s 167 million pounds of zero-coupon notes due 2038 were the best-performing U.K. corporate bonds in August, with a 12.7 percent return, while Cheshunt, England- based Tesco’s 287.5 million pounds of 5.2 percent notes due 2057 gained 10.5 percent, Bank of America Merrill Lynch index data show. The 135 million pounds of zero-coupon bonds due in 2038 issued by Barclays Plc, the third-largest U.K. lender, were the third-best performers, returning 10.2 percent.

“The benefit of the doubt has been granted to U.K. companies for the time being” in terms of the economy, helping the bonds, said Lucette Yvernault, who helps oversee the equivalent of about 7 billion euros as a money manager at Schroders Investment Management Ltd. in London.

Austerity Measures

Austerity measures in the wake of Europe’s sovereign deficit crisis in April will weigh on economic growth and increase the risk of credit rating cuts for some nations, Moody’s said in its semi-annual European Sovereign Outlook on Aug. 23.

The U.K., along with Germany and France, is likely to keep its top rating, Moody’s said. S&P affirmed the U.K.’s AAA rating on July 12, saying planned budget cuts supported the top grade.

The U.K. will announce measures to slash most departments’ budgets by about 25 percent in October as it seeks to tackle a deficit that as a percentage of the economy is greater than the U.S.’s 9.1 percent and the 6.3 percent average for euro-region nations. A total 490,000 public-sector jobs will be lost by April 2015 under the measures being carried out by Chancellor of Exchequer George Osborne, according to Treasury estimates.

Currency Markets

Bonds sold by British companies have returned 5.17 percent since a June 22 emergency budget weeks after Cameron’s Conservative-Liberal coalition came to power replacing the Labour Party’s 13-year reign. Bank of America Merrill Lynch’s broader index gained 3.71 percent in the period.

Credit-default swaps measuring perceptions of sovereign credit quality also show the U.K. outperforming its peers, with the cost of five-year debt insurance tumbling $17,500 since the start of the year to $65,000 annually for a $10 million contract. In the same period, the swaps on the Markit iTraxx SovX Western Europe of 15 countries climbed $72,000 to $141,000, according to CMA.

Currency markets are speculating Cameron’s cuts will hurt economic growth and weaken the pound, which fell to $1.5327 today, down from last month’s high of $1.5999 on Aug. 6.

Spreads on company bonds of only two other nations besides the U.K. narrowed in August, with a 4 basis-point drop on Netherlands securities and a 2 basis-point decline for Japanese corporate notes, Bank of America Merrill Lynch indexes show.

A lack of supply of new bonds in pounds has also helped British company debt, and means any increase in demand boosts the securities “disproportionately,” said Suki Mann, head of credit strategy in London at Societe Generale SA, France’s second-largest bank.

Companies sold 119 million pounds of bonds in the U.K. currency in August, the second-slowest month since at least 1998, according to data compiled by Bloomberg. The month with the least issuance was May, with 34 million pounds of bonds.

U.K. Taking effective Action to Reign in Deficit, EU Says

Bloomberg

 

The European Union said the U.K. has taken effective action to rein in its excessive budget deficit.

“The current economic circumstances call for a decisive fiscal consolidation, while not suffocating the nascent economic recovery,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement issued today in Brussels. “The budgetary targets presented by the U.K. government are in line with this strategy.”

U.K. Chancellor of the Exchequer George Osborne said on June 22 that the government will reduce spending on welfare benefits by 11 billion pounds ($16.7 billion) by April 2015 to help tackle the nation’s record budget deficit. The budget cuts the fiscal deficit by an extra 40 billion pounds by the end of this Parliament on top of the 44 billion pounds planned by the previous Labour government.

“Implementing the planned spending cuts - including a 25 percent reduction in departmental budgets in real terms on average over a four-year period - will be challenging,” the EU said today. “The new Office of Budget Responsibility and the new fiscal rule announced by the U.K. authorities should however contribute to improve the fiscal framework and limit the risks to the adjustment,” it said.

“Provided they are implemented as planned, the measures announced will strengthen confidence in the U.K.’s commitment to putting its public finances back on a sustainable path,” the EU said.

UK's Cameron: Previleged, but with a Common Touch

Seattle Times

LONDON — Conservative leader David Cameron walked into No. 10 Downing Street on Tuesday night as Britain's new prime minister, ending five days of political limbo and 13 years of Labour Party rule after forging a historic coalition that spans the country's political spectrum.

The deal that brought Cameron to power after indecisive elections last week united the Conservatives and the Liberal Democrats in Britain's first coalition government since Winston Churchill's war cabinet in the 1940s.

Cameron, a self-described conservative "modernizer" who has embraced gay rights and green policies, agreed to give the post of deputy prime minister to the Liberal Democrats' leader, Nicholas Clegg, a champion of the poor. The Liberal Democrats, who actually lost seats last week, also won four other cabinet posts and prevailed in their demand for a referendum on broad electoral reform that could aid their party in future elections by giving more weight to the overall popular vote in deciding Parliament seats.

Voters gave the Conservatives more votes and more seats than any other party, but not the majority they needed to govern alone. The Liberal Democrats finished third, behind outgoing Prime Minister Gordon Brown's Labour Party, which suffered its worst defeat in 80 years.

Brown tendered his resignation to Queen Elizabeth II even before the Conservatives and Liberal Democrats had completed their negotiations. Cameron then followed Brown in meeting with the queen, and in a swift handoff that contrasts dramatically with the long transition between presidential administrations in the United States, Cameron spoke for the first time as prime minister eight minutes after leaving Buckingham Palace.

President Obama called Cameron, at 43 Britain's youngest prime minister in nearly two centuries, to congratulate him. The new government is unlikely to bring major changes in transatlantic ties. Though Clegg has sought a more independent line with the U.S. and vowed to bring British troops home from Afghanistan within five years, the Liberal Democrats have not advocated an immediate withdrawal, and the key post of foreign secretary went to William Hague of the Conservatives, who are staunch backers of the special relationship.

Despite their victory, the parties making up the new coalition are the strangest of political bedfellows.

The Liberal Democrats conceded on Conservative plans to begin slashing Britain's yawning budget deficit this year and signed on to a plan to keep and upgrade Britain's nuclear deterrent.

The Conservatives, meanwhile, agreed to offer tax relief to some of Britain's poorest citizens and scrap a plan to offer inheritance-tax breaks to some of its wealthiest.

Yet sharp differences remain in other areas, particularly on the issue of relations with Europe. The Conservatives have vowed more independence from the European Union, a position the Liberal Democrats strongly oppose. As part of the deal, Clegg reportedly agreed not to press for a switch from the pound to the euro during the term of the coalition, but broader ties with Europe still appeared set to be a lightning rod.

Their leaders appear to share a measure of chemistry; Cameron, for instance, is generally seen as standing to the political left of his base and Clegg to the right of his. But far-right Conservatives and fiercely progressive Liberal Democrats were grumbling Tuesday about an unholy union that some analysts say may not survive the five-year term ahead.

"Margaret Thatcher would have kittens," the Conservative-leaning Telegraph newspaper declared about the prospect of a deal.

"It's going to be a very interesting and hairy ride," said Steven Fielding, director of the Center for British Politics at Nottingham University. "We've got a set of politicians who aren't used to coalition government and who are going to have to learn on the job, in the midst of one of the worst economic crises we've ever lived through."

One thing Cameron does have is flexibility, said Peter Snowdon, author of "Back From the Brink: The Inside Story of the Tory Resurrection."

"He's more pragmatic than ideological," he said. "He was brought up in rural England and he considers things like family life and the state of the British union very important. But to him, most things are up for debate, for framing and discussing and forging positions on."

Stat Sheet:

David Cameron

Age: 43, the youngest prime minister since the 2nd Earl of Liverpool ran the government in the early 19th century.

Background: The third of four children, Cameron had a privileged childhood in a small Berkshire village. His father, Ian, was a stockbroker and the chairman of the London gentlemen's club Whites.

Education: When he was 7, Cameron was sent to Heatherdown, a prep school whose alumni include Princes Andrew and Edward. Cameron then went to Eton, the traditional finishing school for Britain's ruling classes, where it was reported that, as punishment for getting caught smoking marijuana, he was made to copy 500 lines of Latin text. At Oxford, he was a member of the notorious Bullingdon Club, whose agenda consisted of getting dressed up, getting drunk and getting out of trouble by paying off the people whose things were destroyed in club bacchanalias.

Family: He is married to Samantha, whose father is a baronet and whose stepfather is a viscount. They have two young children. A son, Ivan, was severely disabled and died last year and the couple are expecting another child in the fall.

Career: When he was 21, Cameron began a series of political jobs with the Conservative Party, starting in its research department. He then spent several years working as head of corporate affairs for Carlton Communications, a media company. He first ran for Parliament in 1997. He lost, but was elected four years later, to the safely Conservative seat of Witney in Oxfordshire. After he was elected leader, he aggressively sought to bring more women and minorities into the party and into Parliament. He promoted environmental issues and spoke out in favor of gay rights and civil partnerships.

Campaign: The big idea of his campaign was something he called the big society, the notion that rather than depending on government to provide their needs, people should look to community and volunteer organizations.

UK's Brown Resigns, Cameron Takes Over

BBC News

Labour's Gordon Brown has resigned as UK prime minister after three years.



Mr Brown officially tendered his resignation to the Queen at Buckingham Palace, with Conservative leader David Cameron set to succeed him.

Speaking alongside his wife Sarah outside No 10 Downing Street, he said the job had been "a privilege" and wished his successor well.

He has stepped down as Labour leader and will be replaced by deputy Harriet Harman until a successor is elected.

However, Mr Brown will remain as a backbench MP in Parliament.

His decision comes as the Tories and Liberal Democrats are poised to agree a deal to form a government.

'Privilege to serve'

Mr Brown said he had taken the decision to resign after concluding he would not be able to form a government after days of talks between the parties.

In an emotional farewell speech outside No 10, Mr Brown said he had "loved the job" and it had been "a privilege to serve".

"Only those who have held the office of prime minister can understand the full weight of its responsibilities and its great capacity for good," he said.

"I have been privileged to learn much about the very best in human nature, and a fair amount, too, about its frailties, including my own.

"Above all, it was a privilege to serve and, yes, I love the job, not for its prestige, its titles and ceremony, which I do not love at all.

"No, I loved the job for its potential to make this country I love fairer, more tolerant, more green, more democratic, more prosperous and more just - truly a greater Britain.

"In the face of many... challenges up to and including the global financial meltdown, I have always tried to serve, to do my best in the interests of Britain, its values and its people."

Anticipating Mr Cameron's appointment, Mr Brown said: "I wish the next prime minister well as he makes the important choices for the future."

His two young sons joined him and wife Sarah for his brief statement which ended with the words: "Thank you and goodbye."

After leaving the Palace, Mr Brown returned to Labour headquarters to thank party staff. He told them that the election defeat was "his fault and his fault alone".

Failed talks

His resignation follows Thursday's general election in which no party won an overall majority but the Conservatives won the most seats and votes.

Both Labour and the Tories have since been trying to persuade the Lib Dems to join them in a coalition government to run the country.

Mr Brown had previously said he would resign as Labour leader, but stay on as prime minister until September, if Labour could agree a deal with the Lib Dems.

But after this possibility ended, the BBC's Political Editor Nick Robinson said Mr Brown decided he could not form a government and should stand down.

Before making his announcement, Mr Brown consulted with his wife Sarah and close colleagues including Lord Mandelson, Douglas Alexander, Ed Balls and Ed Miliband and also spoke to former prime minister Tony Blair by phone.

Deputy Labour leader Harriet Harman is to become Labour leader until a replacement is elected.

Mr Brown said he would stand by the new leader "loyally and without equivocation".

Labour's ruling National Executive Committee has indicated it wants Mr Brown's successor as leader to be chosen as soon as possible, possibly by the end of July.

Mr Brown succeeded Tony Blair as prime minister in June 2007 after spending ten years as chancellor of the exchequer.

With Inconclusive Elections, Britain Heads Down Treacherous Political Path

The Washington Post

Politicians prefer elections that produce real majorities and clear mandates. One lesson from the messy outcome of Britain's just-concluded general election is that politicians should never underestimate the power of voters to disappoint them.

The outcome here has produced something rare. Forced by the failure of any party to win a majority of seats in the next Parliament, negotiations underway here are exploring whether it will be possible for some combination of the parties to govern cooperatively in difficult times.

That's currently unthinkable in the America's winner-take-all political culture. But there is enough evidence that the voters in the United States lack full confidence in either major political party to warrant watching closely what will play out here in the coming days and months.

All three major parties in Britain -- Labor, Conservatives and Liberal Democrats -- emerged from Thursday's election feeling let-down. As a result, the country has been plunged into a period of extraordinary uncertainty. No hanging chads, but a hung Parliament, as it's called.

The visual images across London on Saturday displayed the uncertainty. Politicians have been shuttling between meetings. A group of demonstrators took to the streets, calling for electoral reform. Round-the-clock coverage keeps everyone abreast of any developments.

Most extraordinary was the side-by-side appearance of the three major-party leaders at a ceremony commemorating the 65th anniversary of the end of the war in Europe -- which symbolized more than anything else the fact that no one knows who will lead Britain.

How did it get to this point?

Voters on Thursday dealt a huge blow to Prime Minister Gordon Brown and the Labor Party, which has been in power since 1997. Labor lost 97 seats, its worst setback in 80 years. Labor's share of the vote fell to 29 percent, the lowest since the humiliation of 1983, when the party won just 27 percent.

But voters were not prepared to fully embrace the Conservatives. Although they gained 91 seats, the Tories fell short of the 326 seats needed to claim a majority in the new Parliament.

Six months ago, polls suggested that the Conservatives would easily win enough seats to install David Cameron as the next prime minister. Now Cameron is trying to broker a deal to make it possible for him to enter No. 10 Downing St. as prime minister, while members of his party blame one another for the failure to win a majority against an opponent as unpopular as Brown.

Most disappointed, however, may be the Liberal Democrats and their leader, Nick Clegg. Thanks to the charismatic Clegg's performance in the first nationally televised candidate debates in Britain's history, the Liberal Democrats saw a surge in their support in the weeks before the election.

Clegg called on voters to usher in an era of new politics. For a time, it looked like Liberal Democrats could push Labor into third place in the popular vote. The party also appeared likely to expand its share of seats in Parliament significantly. Instead, the roof caved in on Election Day. Clegg's party actually lost five seats.

Still, the results have put Clegg in the powerful but awkward position of playing kingmaker. More than anyone else right now, Clegg is positioned to name the next prime minister.

Clegg had said the party with the most votes and the most seats deserved an opportunity to form a government. For now, the serious negotiations are between Cameron's Conservatives and Clegg's Liberal Democrats.

The path is treacherous for both sides. Cameron and Clegg are being tugged and pulled between the electorate's apparent desire for governing in the national interest and party activists' fears that the leaders will compromise too much. That tension is something that is familiar on both sides of the Atlantic.

Philip Stevens, a columnist for the Financial Times, noted Saturday that the voters' desire for change and "palpable disenchantment" with the old politics produced the inconclusive outcome of Thursday's balloting. "This demands something of the nation's politicians with which they are largely unfamiliar: a grasp of the national interest that reaches beyond the reflex to grab the spoils of office," he wrote.

For Cameron, still the most likely next prime minister, this is a terribly difficult moment. One option is for the Conservatives to attempt to govern as a minority party, though with some assurances from the Liberal Democrats that they will not try to bring down the government on key votes in return for some nods to their priorities.

On Friday, Cameron appeared interested in seeking something broader, an agreement that would put the two parties in a more formal arrangement. That could give the new government greater stability as it attempts to deal with a major budgetary problem.

But Cameron faces resistance within his ranks from those who fear he already has abandoned principle in trying to modernize his party -- the same sentiment expressed by some conservative activists in the United States about some Republican politicians.

Clegg, whose party won almost a quarter of the vote but not quite 10 percent of the seats in Parliament, faces similar pressures from his activists and some fellow members of Parliament, for whom a major overhaul of the electoral system is of paramount importance.

Brown made an expansive public offer to Clegg on Friday, promising a referendum on electoral reform. His hope is that a breakdown in the current negotiations will drive the Liberal Democrats into the arms of Labor, although the price of Labor's staying in power might be Brown's resignation.

No matter the outcome, it is possible that the new government will be so shaky that Britain will face another election in less than a year. Such is the fluidity of politics here this weekend.

In Washington, the weight remains with the politicians and activists who prefer confrontation to cooperation, as the polarized debate over health care underscored. Politicians willing to work with the other side do so at their own risk.

The new bipartisan debt commission operates in an environment in which neither Republicans nor Democrats on the panel can be confident of support from either elected officials or their parties' rank and file. The current harmonious Senate floor debate over financial regulatory reform is more a function of the politics of the issue -- nobody wants to appear against taking on the banks -- than of a change in the partisan atmosphere.

The United States has not reached Britain's current moment and, because the systems are so different, may never. But the November elections could produce an American equivalent: a Republican House and a Democratic White House.

That would put the same pressure on President Obama and Republican leaders in Congress that Britain's political leaders are feeling this weekend -- caught between the national interest and partisan demands from their wings for a no-compromise stance. British politicians will have to resolve their problems first, but Democrats and Republicans may find their day is coming soon.

Polls: Conservatives Fall Short of Majority in UK

Associated Press

 

LONDON – The Conservatives captured the largest number of seats and the ruling Labour Party suffered substantial losses Thursday in Britain's national election, according to television projections based on exit polls.

The projected result did not bode well for Prime Minister Gordon Brown, Britain's prime minister since 2007, and triggered widespread uncertainty over who will form the next government. The country's top three parties — the Conservatives, Labour and the Liberal Democrats — immediately began jockeying for position in possible coalition.

Frustrated voters, meanwhile, said they were turned away from polling stations and some stations appeared overwhelmed by late voter turnout — a sign of the intense interest in this election.

An analysis by Britain's main television networks suggested David Cameron's Conservative party will win 305 House of Commons seats, short of the 326 seats needed for a majority.

The projections also showed a substantial drop for Brown's ruling Labor Party, giving it 255 seats — its smallest number since 1987. Nick Clegg's Liberal Democrats were seen as winning 61 seats — far less than had been expected. Smaller parties got 29 other seats.

The projection suggests that the Conservatives will gain 95 seats, Labour will lose 94 and the Liberal Democrats will lose one.

If the vote does not give any party a majority, that could produce a destabilizing period of political wrangling and uncertainty. Brown could resign if he feels the results have signaled he has lost his mandate to rule, or he could try to stay on as leader and seek a deal in which smaller parties would support him.

"Let's see how it pans out. Gordon will know whether he should stay on or not," Labour Home Secretary Alan Johnson said. "I think Gordon deserves the dignity to look at these things and make up his own mind."

Hard results began to trickle in about an hour after polls closed. The first seat to declare, Houghton and Sunderland South in northern England, was retained by Labour.

Hundreds of British voters across the country claimed they were unable to vote because they were left still standing in long lines when polls closed at 10 p.m. (2100 GMT, 5 p.m. EDT).

Police in London said they were called to a polling station in east London when about 50 angry voters denied the chance to cast their ballot staged a sit-in protest. Voters in Sheffield, Newcastle and elsewhere in London also complained that they had been denied a vote because of lines as polls closed.

Theresa May, a senior Conservative Party lawmaker, said the exit poll result showed Labour's heaviest losses since 1931, and that the incumbent party had lost "the legitimacy to govern."

But Labour's Business Secretary, Peter Mandelson, pointed out that the sitting prime minister is traditionally given the first chance to form a government.

"The rules are that if it's a hung Parliament, it's not the party with the largest number of seats that has first go, it's the government," he said. "I have no problem in principle in trying to supply this country with a stable government."

He extended an olive branch to the Liberal Democrats, who have called to end the first-past-the-post system, where the number of districts won — not the popular vote — determines who leads the country.

"There has to be electoral reform as a result of this election," Mandelson said. "First-past the-post is on its last legs."

The results may yet change. Projecting elections based on exit polls is inherently risky — particularly in an exceptionally close election like this one. Polls are based on samples — in this case 18,000 respondents — and always have some margin of error.

Britain's census is nine years out of date and the polling districts haven't caught up to population shifts. Many voters also refuse to respond to exit polls.

Thousands have also already cast postal ballots but those results don't factor into the exit polls. About 12 percent cast postal ballots in 2005.

The election result would be disastrous news for the Liberal Democrats, Britain's longtime third party, who enjoyed a big poll surge after the charismatic Clegg appeared in televised TV debates.

Liberal Democrat deputy leader Vince Cable described the outcome of the exit poll as "very strange" and insisted they had been "horribly wrong" in the past.

The Tories are hoping to regain power for the first time since 1997, when they were ousted by Labour under Tony Blair. After three leaders and three successive election defeats, the party selected Cameron, a fresh-faced, bicycle-riding graduate of Eton and Oxford who promised to modernize the party's fusty, right-wing image.

Whoever wins faces the daunting challenge of introducing big budget cuts to slash Britain's huge deficit.

In late trading in New York, the British pound sank to its lowest point in a year to trade at $1.4715.

U.K., Germany Plan to Seek Information on Goldman

The Wall Street Journal

The U.K. and Germany said their financial regulators would seek information from the U.S. Securities and Exchange Commission about the case in which Goldman Sachs Group Inc. is accused of defrauding investors, in order to establish whether British and German banks were victims of wrongdoing.

The two countries count as Goldman's most important markets in Europe, and government investigations there would be another challenge for Goldman as it tries to fend off the charges in the U.S.

On Sunday, U.K. Prime Minister Gordon Brown said he would instruct the Financial Services Authority to conduct an immediate special investigation into how Goldman's alleged actions affected British banks, including the Royal Bank of Scotland Group PLC.

"There is a moral bankruptcy reflected in what I am reading about and hearing about," Mr. Brown told the BBC's Andrew Marr show.

Mr. Brown's statement came after a spokesman for German Chancellor Angela Merkel said Germany's financial regulator Bafin would ask the SEC for information as a possible prelude to legal action in Germany.

"First we must ask for the documents, then evaluate [them] and then decide about legal steps," said the chancellor's spokesman over the weekend.

A spokesman for Goldman Sachs declined to comment.

The threats of possible legal action against Goldman in Europe are a sign of the continuing anger at banks among European voters and officials, many of whom believe that Goldman and other banks, having benefited from bailouts by their respective governments, have reverted to the kind of risky trading that led to the financial crisis.

The U.S. government alleges Goldman sold mortgage investments without telling buyers they were crafted with input from a client who was betting against them.

RBS, which since the financial crisis has been majority owned by the U.K. government, was a large investor in the Goldman-constructed complex securities at the heart of the SEC case. An RBS spokesman declined to comment.

Germany's interest in the case stems from the fact that IKB Deutsche Industriebank AG bought a significant amount of the collateralized debt obligations in question, contributing to the lender's heavy losses on U.S. mortgage-related securities. Those losses led to a €3.5 billion ($4.73 billion) bailout of IKB in mid-2007, with most of the money coming from IKB's major shareholder, German state bank KfW. An IKB spokeswoman declined to comment.

IKB's near-failure marked the start of an escalating banking crisis in Germany in 2007, which found that numerous state and private-sector banks in Europe's biggest economy had invested and lost heavily in U.S. mortgage-related securities. The losses undermined German officials' claims that the subprime-mortgage crisis was a U.S. problem and forced Germany to announce a €500 billion bailout of its banking sector in October 2008.

The FSA is an independent government agency, and it isn't clear how Mr. Brown's statement will impact the U.K. regulator. A person familiar with the matter said Sunday that the FSA was monitoring the U.S. probe into Goldman and was trying to obtain additional information before deciding whether to formally open its own investigation.

In the U.K., the Goldman case is becoming a political football with too-close-to-call national elections due May 6.

The banking industry, deeply unpopular among the British public in the wake of government bailouts and lofty pay packages, has already been a theme in the elections. Politicians from all parties have been vying to outdo each other with promises to tighten control of banks' risky activities. Goldman's alleged actions, especially at the expense of a bank that later needed a taxpayer bailout, are likely to add fuel to the fire.