Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

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

6 Critical Money Making Rules