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
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
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

Bradford and Bingley- Another Bank Cracks Under Credit Crunch Pressure

Companies / Banking Stocks Jun 02, 2008 - 12:59 AM GMT

By: Nadeem_Walayat

Companies

Best Financial Markets Analysis ArticleThe Bradford and Bingley, Britain's biggest buy to let mortgage lender is expected to announce another profits warning later today as its Chief Executive abandoned the sinking ship ahead of a £300 million originally heavily discounted rights issue at 82p, which given Friday's close of 86p and today's expected price slump looks increasingly vulnerable.

Way back in August 2007, well before the credit crisis broke across the mainstream media, I specifically warned of three mortgage banks that are especially vulnerable during the next housing bust Of the three the first one to go was Northern Rock in spectacular style and much earlier than one could have imagined during Sept 07, by way of the first run on a British bank in 150 years. The Government eventually did another u-turn by nationalising the bank in January 08.


Bradford and Bingley appears to be trending towards a similar fate despite huge amounts of funds made available to the bank by the Bank of England in an attempt at averting the credit crisis contagion from spreading across the decimated UK banking and mortgage finance system.

The Bank of England and Treasury will be out in force attempting to arrange a potential rescue package for Bradford and Bingley by one or a group of larger banks BEFORE it reaches the stage of Northern Rock, as the last thing Gordon Browns beleaguered government needs is the nationalisation of a another big UK bank.

As I warned in November 2007, the Buy to let sector will be hit the hard in the quarter April to June 2008 as contrary to Bradford and Bingley's assertions, it will be these speculative investors that will be the most eager to bail out ahead of sharp price falls, which is now coming to pass. The outlook for Bradford and Bingley looks grim for several more years as the share price suggests having collapsed from £4.50 to just £86p (80%) with a further plunge expected on today's opening.

Those hoping for an early turn around in the UK housing market are in for a great deal of disappointment. The UK housing market forecast for a 15% fall over 2 years (Aug 07 to Aug 09) has proved remarkably accurate to date as the above graph illustrates, and given the Nationwide's latest news of a slump in May 08, there is no silver lining visible on this dark cloud hanging over the mortgage sector. In fact my most recent analysis concluded that the UK housing market is expected to fall by at least 19% in nominal terms over 3 years (Aug 07 to Aug 10), which equates to a 33% drop in real terms (RPI).

Home owning consumers accustomed to gains in house prices equivalent to their salaries which induced them to use their housing equity as ATM cards are now facing the deflationary impact of an annualised loss in equity of equivalent to as much as 50% of their salaries. Under these circumstances, the recent tax cut of £120 a year, is but mere peanuts given the scale of the impact on the economy of the housing bust that will be most forcibly felt during 2009.

As an example of how overvalued UK house prices are internationally, one only needs to compare against the US housing market.

Meanwhile the vultures are circling amongst the carcasses of decimated financial institutions such as Bradford and Bingley, we already saw JP Morgan buy up Bear Stearns for 10 bucks a share against $160 a year earlier. A large part of the collapse followed a panic and short-selling driven mark down in the week before the takeover that was accompanied by a $30 billion sweetener from the Fed. Nomura of Japan is the latest to announce the formation of a $3.3 billion credit crisis fund to buy up illiquid and thus heavily marked down securitised debt assets as a gamble on the unfreezing of the interbank market at some point in the future. Expect large chunks of Bradford and Bingley to also be sold off in the near future.

The consequences of the credit crunch has resulted in governments throwing out their monetary policy rule books. As an example the expectation is for the Bank of England to quietly forget that its primary objective is to target 2% CPI Inflation, perhaps it will be announced by Gordon Brown in another U-turn later this year? The western world continues to drift into an era of stagflation under which circumstances panicking governments will increasingly be tempted to buy votes ahead of elections, as Labour illustrated by the announcement of £2.7 billion tax cut ahead of the May elections. The result of this strategy of inflating the money supply will just prolong the pain as Japan learned following its own credit crunch in the early 1990's the consequences of which are still evident today.

For more analysis on credit crisis subscribe to our FREE weekly newsletter.

More Analysis of the UK Housing Market:

26 May 2008 - US and UK Housing Bear Market Trends
22 May 2008 - Council of Mortgage Lenders 2008 Housing Market Forecast Demolished
08 May 2008 - UK House Prices Tumbling- Interest Rate Conundrum
21 Apr 2008 - Bank of England Throws £50 billion of Tax Payers Money at the Banks
17 Apr 2008 - Credit Crisis SCOOP- LIBOR Is Now Irrelevant to Derivatives Pricing
08 Apr 2008 - UK House Prices Plunge Over the Cliff
01 Apr 2008 - How to Fix the Credit Markets
11 Mar 2008 - RICS Data Confirms UK Housing Market Heading for 1990's Style Crash
03 Mar 2008 - Credit Crisis Morphs Into Stagflation- Protect Your Wealth!
26 Feb 2008 - UK House Prices Fall for 5 Months in a Row- Housing Market Will Go Negative April 08
07 Feb 2008 - UK Interest Rates Cut to 5.25% - Will Not Help the Housing Market
21 Dec 2007 - UK Commercial Properties Crash Looms as Property Investment Fund Frozen
07 Dec 2007 - Analysis of Interbank and Base Interest Rate Spread
05 Dec 2007 - UK Home Owners Unable to Refinance Mortgages As Fixed Rates Expire During 2008
02 Dec 2007 - UK Housing Slump Gains Momentum as Properties Fail to Sell at Auction
10th Nov 2007 - Crash in UK House Prices Forecast for April 2008 As Buy to Let Investors Sell on Capital Gains Tax Change
28th Oct 07 - UK House Prices - Primary Reasons For a Sharp Fall
25th Sep 07 - UK Housing Market on Brink of Price Crash - Media Lessons from 1989!
22nd Aug 07 - UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth
1st May 07 - UK Housing Market Heading for a Property Crash

 

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 150 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.


Comments

Mark
02 Jun 08, 02:46
Australian Housing market

Very interesting article, Nadeem.

I have been following your analysis and find it to be quite accurate all the time.

Are you able to make a prediction for the Australian housing market? It seems the housing market in Australia is very resilient to any downturn. Can we expect a USA/UK style housing downturn here in Australia?

You thoughts on this would be highly appreciated.

Thanks

Mark

Sydney, Australia


Post Comment

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

6 Critical Money Making Rules