Barclays’ shares hit a three-year low yesterday in another day of pain for the banking stocks, as further analysts’ downgrades and continued rumours of emergency central bank funding plagued the sector.
Analysts predicted that “things could get worse” if investors continued to run scared from UK bank stocks because of fears that the companies are hiding hits from investments in US sub-prime mortgages.
The prospect of a full-blown financial crisis edged nearer yesterday as fears of black holes in the accounts of British, European and US banks sent confidence in the sector spiralling downwards.
A third successive day of falls in the values of Britain’s banks, led by Barclays, mimicked declines on the continent and the US following concerns that banks had failed to own up to all their debts and trading problems resulting from the global credit crunch.
A new phase in the credit crunch, one of “$1 trillion losses” seems to be dawning. The crisis at Citigroup and renewed doubts about some of the world’s leading banks disquieted stock markets on both sides of the Atlantic yesterday, with the fractious mood set to continue.
The FTSE 100 fell 69.2 to 6,461.4, with Alliance & Leicester (down 4 per cent) and Barclays (off 3 per cent, to a two-year low) singled out for punishment. In New York, Citigroup, down |4.9 per cent to multi-year lows, weighed on the Dow Jones index, which fell 51.7, or 0.4 per cent, to 13,543.4. Merrill Lynch, Goldman Sachs and Lehman Brothers also dropped on speculation they face more writedowns on top of the $40bn (£19bn) announced in the past four months.
Bill Gross, the chief investment officer of Pacific Investment Management, said US mortgage delinquencies and defaults would rise in 2008. “There are $1 trillion worth of sub-primes, Alt-As [self-certified] and basically garbage loans,” he said, adding that he expects some $250bn in defaults. “We’ve only begun to see the pain from rising mortgage payments,” he added. Brian Gendreau, an investment strategist at ING, commented: “Financials are 20 per cent of the S&P 500 and if that sector doesn’t do well all bets are off. People just don’t know what’s on the balance sheets.”
The Bank of England has agreed to give emergency financial support to the Northern Rock, one of the UK’s largest mortgage lenders, the BBC has learned.
However this does not mean that the bank is in danger of going bust, Business Editor Robert Peston says.
There was no reason for people with Northern Rock savings accounts to panic, he added.
The bank has struggled to raise money to finance its lending ever since money markets seized up over the summer.
The decision for the Bank of England to become the “lender of last resort” is extremely rare – and comes after consultation with the Treasury and the Financial Services Authority.
More than two million people are permanently overdrawn, and the average worker goes into the red 27 days after payday, a survey shows.
Almost half of working Britons — more than 10 million people — have slipped into the red at least once in the past 12 months, including 2.1 million people who are continually overdrawn, according to price comparison site Moneysupermarket.com.
Those who are unable to stay in the black go overdrawn on the 20th of the month, on average — 27 days after payday, as most people are paid on the 24th day of the month.
Kevin Mountford, head of current accounts at Moneysupermarket.com, said the findings were not surprising, particularly as the Bank of England has hiked the base rate five times in the past year.
“Consumers are no doubt feeling the squeeze,” he said.
First it was mortgages equal to five or six times a homebuyer’s salary. Now the half-century home loan beckons.
A UK broker firm today revealed it was in talks with a lender about launching a 50-year mortgage.
The Mortgage Lender, which describes itself as one of Britain’s leading providers of remortgage, loan and debt solutions, said there was no reason why a mortgage should be restricted to “just 25 or 30 years”.
It is working on developing and launching a mortgage that would last for 50 years, and argued that a combination of issues, including sky-high property prices and longer life expectancy, were all working against the traditional 25-year mortgage model.
The country’s largest bank is closing the doors of one of its branches — but only to poorer customers.
The HSBC in the well-heeled area of Canford Cliffs, near Poole in Dorset, will only offer cashier services to richer clients from June 11. Anyone else will have to make do with cash machines.
The branch lies close to the Sandbanks area overlooking Poole Harbour which boasts some of the most expensive property prices in Britain outside London.
To be eligible for face-to-face banking services at the branch, customers will have to fall into its “premier” category, which means they will have to have savings of at least 50,000 pounds or a 200,000 pound mortgage.
Alternately, they must have a 100,000 pound mortgage plus a salary of 75,000 pounds-plus.