Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
9.WE HAVE NO CHOICE BUT TO INVEST IN STOCKS AND HOUSING MARKET - Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
Why PEAK INFLATION is a RED HERRING! Prepare for a Decade Long Cost of Living Crisis - 9th Aug 22
FREETRADE Want to LEND My Shares to Short Sellers! - 8th Aug 22
Stock Market Unclosed Gap - 8th Aug 22
The End Game for Silver Shenanigans... - 8th Aug 22er
WARNING Corsair MP600 NVME2 M2 SSD Are Prone to Failure Can Prevent Systems From Booting - 8th Aug 22
Elliott Waves: Your "Rhyme & Reason" to Mainstream Stock Market Opinions - 6th Aug 22
COST OF LIVING CRISIS NIGHTMARE - Expect High INFLATION for whole of this DECADE! - 6th Aug 22
WHY PEAK INFLATION RED HERRING - 5th Aug 22
Recession Is Good for Gold, but a Crisis Would Be Even Better - 5th Aug 22
Stock Market Rallying On Slowly Thinning Air - 5th Aug 22
SILVER’S BAD BREAK - 5th Aug 22
Stock Market Trend Pattren 2022 Forecast Current State - 4th Aug 22
Should We Be Prepared For An Aggressive U.S. Fed In The Future? - 4th Aug 22
Will the S&P 500 Stock Market Index Go the Way of Meme Stocks? - 4th Aug 22
Stock Market Another Upswing Attempt - 4th Aug 22
What is our Real Economic and Financial Prognosis? - 4th Aug 22
The REAL Stocks Bear Market of 2022 - 3rd Aug 22
The ‘Wishful Thinking’ Fed Is Anything But ‘Neutral’ - 3rd Aug 22
Don’t Be Misled by Gold’s Recent Upswing - 3rd Aug 22
Aluminum, Copper, Zinc: The 3 Horsemen of the Upcoming "Econocalypse" - 31st July 22
Gold Stocks’ Rally Autumn 2022 - 31st July 22
US Fed Is Battling Excess Global Capital – Which Is Creating Inflation - 31st July 22
What it's like at a Stocks Bear Market Bottom - 29th July 22
How to lock in a Guaranteed 9.6% return from Uncle Sam With I Bonds - 29th July 22
All You Need to Know About the Increase in Building Insurance Premiums for Flats - 29th July 22
The Challenges on the Horizon for UK Landlords - 29th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22
The Psychology of Investing in a Stocks Bear Market - 26th July 22
Claiming and Calculating The Research and Development Tax Credit - 26th July 22
Stock Market Bearish Test - 26th July 22
Social Media Tips and Writing an Effective Call to Action - 26th July 22
Has Rishi Sunak Succeeded in Buying His Way Into No 10 - Fake Tory Leadership Contest - 26th July 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK Mortgage and Commercial Banks Decimated by Bear Stearns Bust

Companies / Banking Stocks Mar 17, 2008 - 03:24 PM GMT

By: Nadeem_Walayat

Companies Best Financial Markets Analysis ArticlePanic selling of the financial sector gripped the stock market today following news of the bailout of Bear Stearns over the weekend. The FTSE ended the day down over 200 points. The banks hit the hardest were the mortgage banks followed closely by those with large mortgage backed bonds and derivatives exposure as the deleveraging of the $500 trillion market continues. The Bank of England stepped in to provide emergency lending of £5 billion which was oversubscribed by more than 5 times, and indication of the desperate state of the UK banks.


Royal Bank of Scotland (RBS)

RBS Fell nearly 9% to 304p, the bank is down 58% from its 12 month high of £7.20. The resulting yield of 15% seems unsustainable in the wake of further write downs expected.

The bank is still in the process of digesting its takeover of ABN Amro, which unfortunately brought several £ billions of losses in sub prime mortgages with it that has hit the RBS share price.

 

Charts courtesy of bigcharts.com

HSBC

HSBC is one of Britain's strongest banks, that despite large losses of more than $20 billions in the US sub prime housing market, managed to increase profits by 10% to $24 billion due to surging revenues from its extensive asian operations.

This underlying strength is reflected than the fact that the bank's share price has managed to hold up well compared to many others, falling just 2% on the day to £7.46, and down 24% on its 12 month high of £9.72. The bank is expected to continue to outperform the banking sector despite expectations of further bad debt losses of another $20 billion.

 

Barclays

Barclays, in the light of its failure to take over ABN Amro was seen as a positive outcome in the light of the credit crisis and infact as a potential take over target itself. However, given the current high risk environment, take over talk has completely evaporated which is reflected in the fall of its share price today of nearly 10% to £3.92 and a fall of 50% from its 12 month high.

Barclays has estimated losses of $3 billion in its sub prime and derivatives related activity. This is expected to grow over the next 12 months by at least a further $2 billions.

 

Halifax Bank of Scotland (HBOS)

Britain's biggest mortgage bank crashed by 12.5% today to just £4.60 per share, that's a fall of 60% over the last 12months.

As the UK housing market tumbles the Halifax despite its size is going to come under increasing financial pressure. However, it 'should' survive and come out stronger at the other end of the crisis, perhaps in 2010.

 

 

Alliance and Leicester

A&L, a buy to let market specialist saw its share price plunge by over 7% to £4.75. The banks share price has fallen over 61% in 12 months. The bank has over the last 6 months attempted to move some way away from the buy to let market and has expanded its commercial banking operations which is expected to give some support to the bank going forward. However unlike many other UK mortgage banks the A&L does have sizeable direct exposure to the US sub prime mortgage market and therefore is at serious risk of seeking emergency funding from the Bank of England.

 

Bradford and Bingley

B&B ended the day at £1.93 down 3.6%. The bank is down 65% from its high of £5.40 and the earlier fall below £2.40 had seen the bank break below critical multi year support levels, a level that now is expected to act as a cap on the share price.

This bank most closely resembles Northern Rock in that of heavy reliance on the money markets and high degree of exposure to the UK's speculative buy to let mortgage market. Infact, Bradford and Bingley is Britain's biggest buy to let mortgage bank. Therefore the bank is at serious risk and expected to experience extremely difficult trading during the UK housing bear market that is just beginning.

The major UK Banks at most risk of failure are those with large mortgage books such as HBOS, A&L and Bradford and Bingley. The banks most likely to whether the downturn the best are those with far east exposure such as HSBC.

What's not mentioned are the smaller banks and a whole host of financial institutions that are heavily involved in the UK sub prime and buy to let mortgage markets that are near tipping points.

The impact on borrowers is being felt in the widening spread between the base interest rate and the mortgage rates offered to customers coupled with increased arrangement costs and much tighter lending criteria. This was first highlighted some 7 months ago UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth . The Banks of began withdrawing easy credit facilities during September 2007,(UK Mortgage Banks Call in the Loans - Housing Market Deflation) and even today more mortgage products vanished from the banks shelves in a deluge of press releases giving mere minutes of withdrawal notices.

The UK housing market is now down some 5% from the peak set in August 07, and is on course to meet the forecast target for a minimum 15% decline over 2 years. The consequences of this is for further strain on the market banks with no light at the end of the tunnel in sight. The risks are obvious that Northern Rock, and Bear Stearns will be followed by more bank failures and subsequent central bank bailouts which contributes towards a stagflationary environment.

The British Pound fell sharply on the increased risks of bank failures as the UK's financial sector is much larger as a percentage of the economy than virtually all other major industrialised countries, therefore the economic impact going forward will be much greater than consensus expectations.

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article if published in its entirety, including attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in