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Thread: America isn't the only one with financial problems

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    Default America isn't the only one with financial problems

    Run on the Bank 2
    http://business.timesonline.co.uk/to...cle2457009.ece

    The jitters plaguing financial markets spread to the high street for the first time yesterday as thousands of panicking savers queued to withdraw millions of pounds from Northern Rock, Britain’s eighth-biggest bank.

    The rush to pull out savings followed the revelation that Northern Rock had been forced to ask the Bank of England for a rescue injection of finance.

    As crowds of customers demanded their money back, shares in Northern Rock slumped by 31 per cent after it alerted shareholders to its difficulties, wiping £900 million from its value. Shares in other financial institutions were also hit, with Alliance & Leicester down 7 per cent and the specialist lender Paragon Group down 17 per cent.

    The Bank of England pledged to provide unspecified liquidity support to see Northern Rock through the turbulence while it worked on an orderly resolution to its problems. The bank is braced for a fresh surge of withdrawals from its 76 branches to-day and last night was planning to extend its opening hours.
    Adam Applegarth, the chief executive, told The Times that he had ordered extra deliveries of cash in expectation of the deluge.

    The nerves were exacerbated yesterday when Northern Rock’s computer system collapsed under the weight of online customers scrambling to transfer money out of the bank. Savers were blocked from seeing details of their accounts, including statements, when they tried to log in. A spokesman said accusations that the bank had shut down its system to prevent a drain on its finances were ridiculous.
    Ministers, regulators and bankers tried to calm the panic by issuing reassuring statements that customers’ deposits were safe. The Financial Services Authority, which supervises banks, said that Northern Rock was solvent, exceeded its regulatory capital requirement and had a good-quality loan book.

    Alistair Darling, the Chancellor, who authorised the rescue, said: “At the moment there is plenty of money in the system, the banks have got money . . . they are simply not lending in the short-term way that institutions like Northern Rock need.”

    Sentiment soured further amid fresh evidence that house prices were starting to fall. Rightmove, the online property site, reported that asking prices slumped by 2.6 per cent last month. That followed a report by the Royal Institution of Chartered Surveyors showing the first fall in house prices in nearly two years.
    Northern Rock customers fearing for their savings filled branches across the country, with some queues stretching down the street. At one London branch, customers queued for more than an hour. Wil-liam Gough, 75, said he did not believe the bank’s assurances that his savings were safe. “They’re telling us not to worry, but we’ve heard it before, with Marconi,” he said, referring to the collapse of the telecoms firm in 2002.

    Another saver, Gary Diamond, said: “I don’t want to be the mug left without my savings.”

    Many financial institutions have been hit by a sudden shortage of cash and other liquid assets as banks hoard money in anticipation of having to provide finance to complex investment vehicles. Triggered initally by defaults by poor Americans struggling to meet increased mortgage bills, the problem has spread.

    Northern Rock has been hit particularly badly because it relies much more on funding from wholesale investors, who have been paralysed by the credit crunch, rather than ordinary depositors. But it also risks being accused of overaggressive lending after lifting new loans by 43 per cent in the first eight months of 2007.
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    Default Re: America isn't the only one with financial problems

    this whole mortgage bond / derivatives business has compromised the 'quality' of investments held by all sorts of institutions. Obviously one of the big holders have been European banks, as european investors had continued to be 'hungry' for high interest paying US mortgage based securities ... which are now recognized to be risky, and which are now virtually impossible to 'sell' to other financial institutions without the seller having to book huge losses on principal (which is causing the liquidity crisis). However, there are many other institutions besides banks who also hold this 'toxic' mortgage backed security paper ... among them US state and local gov'ts, private plus gov't based retirement funds, mutual funds, and a host of others who still have not been forced to 'come out of the closet' and disclose exactly how much 'toxic' paper they are holding or exactly how much they have lost on principal i.e. their original purchase price vs the current market price.

    This is going to get EXTREMELY UGLY by the first quarter of 2008, as year end independent accounting starts to shed some light in that 'closet' !

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    God/dess Deogol's Avatar
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    Default Re: America isn't the only one with financial problems

    I am dying to see how this effects the market on Monday. It seems a little out of touch with reality here lately.

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