Sub-prime Crisis Affects Global Markets
It seems that the problems in the US with sub-prime markets may be reverberating around the world. These days it is virtually to limit a large financial crisis to one country.
Yesterday the London stock market fell like a stone as signs of the worsening crisis in credit market caused a jittery sell-off. There were signs of panic as the FTSE 100 Index plunged more than 150 points following news that the European Central Bank (ECB) had called upon emergency liquidity (a record £64.6bn) into credit markets. This has not happened since the 9/11 terrorist attacks in 2001.
European and American stock markets experienced large drops, with Wall Street falling by 387 points (2.8%) on Thursday.
Investors grew even more nervous at rumours that the US Federal Reserve was considering cutting interest rates – maybe even on Friday – to try and prevent further sell-offs.
The ECB hoped that the injection of €95bn would prevent the US sub-prime mortgage problems from spreading like wildfire into the banking systems of Europe. It had emerged early on Thursday that the largest bank in France, BNP Paribas, had had to suspend three funds which had large US debt exposure. By the middle of the afternoon shares in Paris, Frankfurt and London were all down by over 2%.
The bank itself lost 5.5% after it has suspended redemptions of the three funds after a ‘complete evaporation of liquidity’. Net asset value for the funds had become impossible to calculate after recent market nerves.
The Royal Bank of Scotland in the UK announced that it had had to abandon the sale of £1.1bn worth of hotel stock for the second time in three months owing to the credit crunch. The deal would have meant syndicating £900m of debt. Normally this would be manageable, but the fears in the marketplace following soaring default rates in America’s high risk mortgage market have made it impossible for now.
The US sub-prime crisis has been in the news for some time now, following the collapse of two funds at Bear Stearns, a huge US investment bank. That such an institution had to come clean about the loss of value of two such funds caused a stir in the US which is now threatening to cause more than a ripple in worldwide financial markets. Huge sums of money had been lent to homebuyers with poor credit history and the chances of recovering are now virtually zero. The funds once had combined values of $20bn.
The crisis deepened on Monday when US sub-prime lender American Home Mortgages had to file for bankruptcy, and then on Tuesday one of the biggest providers in the US, Impac Mortgage Holdings, announced that it was halting all funds to risky loans. On Thursday DB mortgages, part of the German Deutsche Bank, pulled its UK sub-prime mortgages out of the UK market, with the line to brokers that it wanted to reconsider its level of interest rates.
Thursday saw the London FTSE 100 close down 122.7 points at 6271 – a fall of 2%. It recovered from an earlier position of 150 points off.
20th August 2007
- Calls For Stamp Duty Reform [20.08.07]
New Chancellor Alistair Darling has been called upon by experts in the property industry to give stamp duty a complete overhaul after figures showed that 60% of first-time buyers are having to pay the tax.
- Slow down in rise in personal insolvencies [18.07.08]
The rise in personal insolvencies in England and Wales has taken a dip in the second quarter of this year.
- Consolidate your way to financial freedom [18.08.07]
According to one financial adviser in the UK many consumers could find their way to financial freedom more easily by consolidating their existing debts.
- No Rise In Interest Rates - MPC [17.08.07]
In August the Bank of England’s Monetary Policy Committee (MPC) voted to hold UK interest rates at 5.75%, the level set the month before. The 5.75% rate was the highest since March 2001 and represented the fifth rise in twelve months, having taken the base rate from 4.5% last August.
- Homeowners adding value to their homes with loans [17.08.07]
Over recent years secured, homeowners loans have become increasingly popular in the UK, and one of the leading factors in this rise in popularity is the growth in property prices.
- Global Market Crisis [15.08.09]
It seems the US sub-prime crisis has finally spread around the world – with a vengeance. Global stock markets took a hammering last week as a knock-on effect from the problems that started in the United States.
- Number of people in serious debt rockets [13.08.07]
According to a recent report the number of people that are in serious debt has risen by around 30% in the last year alone. Debt levels in the UK have been at the centre of concern for some years, as the debt mountain continues to rise and bad debt levels smash through unprecedented barriers.
- Leading mortgage lender announces mortgage exit fees will be scrapped [13.08.07]
A number of major lenders in the UK have recently announced that they have scrapped mortgage exit fees, which are charged to borrowers when they repay a mortgage or when they close a mortgage account to switch to another lender.
- Halifax’s 25 Year Fixe Rate Mortgage Offering [09.08.07]
Halifax (HBOS) has joined those offering 25-year fixed rate mortgages with a rate of 6.39%. The deal has an arrangement fee of £599 and an early repayment charge of 3% over the first ten years.