ADVFN Logo ADVFN

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Hot Features

Registration Strip Icon for discussion Register to chat with like-minded investors on our interactive forums.

AL. Alliance & Leic

234.00
0.00 (0.00%)
Last Updated: 01:00:00
Delayed by 15 minutes
Alliance & Leicester Investors - AL.

Alliance & Leicester Investors - AL.

Share Name Share Symbol Market Stock Type
Alliance & Leic AL. London Ordinary Share
  Price Change Price Change % Share Price Last Trade
0.00 0.00% 234.00 01:00:00
Open Price Low Price High Price Close Price Previous Close
234.00
more quote information »

Top Investor Posts

Top Posts
Posted at 29/9/2008 21:09 by mart_read
Santander have made an absolute killing from AL and B+B, millions of new desposit customers and all backed by the Bank of England should they withdraw, its almost a spanish invasion. I imagine when the dust settles and the investors reflect, the winners from this crisis will be clear to see, but its going to take a few months.
Posted at 25/8/2008 21:06 by evox
To sell or not to sell? The great A&L takeover debate
ALLIANCE & LEICESTER shareholders received voting packs last week on its proposed takeover by Banco Santander, the Spanish banking giant that owns Abbey.
Each of A&L's 564,000 shareholders will have until September 16 to decide on the £1.3 billion bid, which would see A&L merge with Abbey.
The board has unanimously recommended that shareholders vote in favour of the takeover.
Roy Brown, the acting chairman of A&L, said in the 254-page voting pack: "The proposed acquisition would bring together in the same group two well known UK banks and create a more effective competitor in UK financial services."
So, what should shareholders consider before the vote?
If the deal goes ahead, A&L ordinary shareholders will receive one new Banco Santander share for every three A&L shares.
A&L will pay an interim dividend of 18p a share to those who held shares at the close of business on September 5. That payment will be made four days before the proposed takeover date of October 10.
Experts say, however, that the takeover is not a great deal for investors.
A&L shares reached a high of £11 two years ago, and the Spanish bank's bid values A&L at just 335p a share. This factors in the 18p dividend.
"A&L shares have been on brokers' sell list for a number of months," said Richard Hunter of adviser Hargreaves Lansdown.
Brown has said that A&L faces "significant external risks" – from the slowdown in the economy and continuing turbulence in financial markets.
A takeover by Santander would link A&L with Europe's second-largest bank after HSBC. Santander has operations in Latin American economies, which also helps spread risk from western Europe.
For those with a large number of shares, the takeover could help diversify their portfolio, giving access to a "well respected overseas bank", said Hunter.
However, he added: "For someone with only a few shares, you may consider selling them for practical reasons. Buying into European shares means the commission you pay will be higher when you sell and there's also an exchange-rate risk."
If shareholders sell before September 5, they will not be entitled to receive the interim dividend. Those who want to vote by post need to ensure their forms are received by September 14.
Votes are not being accepted by fax or e-mail, but you can vote online at alliance-leicester-shareregistrars.co.uk.
Shareholders can also vote in person at an extraordinary meeting due to be held at the International Convention Centre in Birmingham on September 16.
The acquisition will take place if the majority of A&L shareholders vote in favour and the majority holds 75% or more of the total value of A&L shares.
There will also need to be regulatory approval before the deal gets the green light.
Posted at 24/6/2008 08:54 by buywell2
This will not help the UK banking sector

10% of ALL US homeowners are now in negative equity

With another 25% fall in house prices this should jump to around 15% OVER THE NEXT 12 MONTHS

Over 50% of homeowners that bought a house in 2006 are in negative equity many are just walking away from their houses.

US banks to take another hit of over $500 Biliion as conditions worsen

June 23 (Bloomberg) -- Goldman Sachs Group Inc. reversed its May 5 recommendation for investors to add to U.S. financial and consumer stocks, conceding it was ``clearly wrong'' about the prospects for both groups.

Goldman advised investors to ``underweight'' the categories by allocating less to them than their weightings in the Standard & Poor's 500 Index. In May, the world's biggest securities firm boosted its rating on financial companies to ``neutral,'' or market-weight, and assigned an ``overweight'' recommendation to consumer shares. ``We boosted our consumer discretionary and financials weights in May on the belief the sectors would benefit from bank recapitalization and fiscal stimulus,'' New York-based Goldman analyst David J. Kostin wrote in a note to clients today. ``Our thesis was clearly wrong in hindsight.''
Posted at 17/4/2008 12:34 by zimzoot
This sums up US banks...Only a month ago, analysts were predicting profit!

The downturn has only just started for the UK....



More pain for Merrill Lynch


Wall Street firm's quarterly loss is even wider than expected after billion in writedowns, and it plans to cut 4,000 jobs


NEW YORK (CNNMoney.com) -- The pain isn't over for Merrill Lynch & Co.

The investment bank Thursday missed even the drastically lowered estimates for its first-quarter results, reporting a net loss of $1.96 billion, or $2.19 per diluted share.

The company also plans to cut about 4,000 jobs, or about 10% of its workforce, excluding financial advisers and investment associates. It will focus the reductions in its global markets and investment banking division.

Net revenue was $2.9 billion, down 69% from the prior-year period, primarily due to net writedowns totaling $1.5 billion related to asset-backed securities and a downward adjustment of $3 billion related to hedges with financial guarantors.

"Despite this quarter's loss, Merrill Lynch's underlying businesses produced solid results in a difficult market environment," said John A. Thain, chief executive officer, who said the bank remained well-capitalized.

Analysts had projected a $1.99 per share loss on a net loss of $1.4 billion and revenue of $3.7 billion.

Wall Street was prepared for horrendous earnings from Merrill Lynch (MER, Fortune 500). Analysts were almost tripping over themselves to cut profit estimates and enlarge writedowns, suspecting the value of the company's assets had fallen steeply in recent months. Only a month ago, analysts were predicting profit of 48 cents per share. At the start of 2008, the consensus estimate was $1.52 per share.

"Unfortunately, Merrill has significant balance sheet exposures in many of the asset classes that experienced continued pricing pressure in [the first quarter]," wrote Jeff Harte in an April 2 note.

Like its peers, the bank is still suffering from a decline in the value of assets such as mortgages and leveraged loans, and from its exposure to crumbling bond insurers. Merrill Lynch played big in the mortgage market and lost. It continued to issue mortgage-backed securities in 2007, even as the market was faltering.

Merrill Lynch raised $12.8 billion in capital during the past two quarters and Chief Executive John Thain has said he doesn't plan to raise any more.

Investors question Thain's ability

But investors aren't showing much faith in Thain, who was brought in November to replace Stanley O'Neal after the company reported a record $2.24 billion quarterly loss.

Rumors swirled this week as reports surfaced that the company would cut up to 15% of its staff.

A year ago, the picture was much different. Merrill was basking in a 31% increase in quarterly profit, as trading revenue and investment banking fees soared. The bank turned in a record performance of $9.9 billion in revenue and $2.2 billion, or $2.26 per share, in net income.

At the time, executives knew the subprime sector was weakening but did not fathom what it would do the storied institution. Chief Financial Officer Jeff Edwards sought to assure investors on the quarterly conference call.

"At this point, we believe the issues in this narrow slice of the market remain contained and have not negatively impacted other sectors," he said last year.

This year, Merrill Lynch tried to highlight some of the strengths in its other businesses. It garnered record quarterly net revenue in its global wealth management division and had "significant" revenue growth from its stake in BlackRock, an investment management company. It also said it had a "healthy" investment banking fee pipeline, down only 5% overall from the end of 2007.

"Our global franchise is positioned strongly for the future, and we continue to invest in key growth areas and regions," Thain said.

Banks reporting mixed results

Merrill is the latest financial firm to report earnings this week. It's been a mixed bag for the others.

Wachovia Corp. (WB, Fortune 500) surprised Wall Street Monday with a first-quarter loss of $350 million, or 20 cents a share, while Washington Mutual (WM, Fortune 500) reported a loss of $1.1 billion, or $1.40 a share, on Tuesday.

On Wednesday, Wells Fargo & Co. (WFC, Fortune 500) reported earnings of 60 cents a share on $2 billion of income and and record revenue of $10.6 billion. Earnings fell 11% from a year earlier, but beat analyst estimates. JPMorgan Chase (JPM, Fortune 500) also beat estimates with net income of $2.4 billion, or 68 cents a share, on $16.9 billion of revenue.

Investors are bracing for results fromCitigroup Inc. (C, Fortune 500) on Friday and Bank of America Corp. (BAC, Fortune 500) on Monday. Both are expected to turn in weak performances.
Posted at 15/4/2008 10:35 by buywell2
Nobody saying much this morning ?

AL. got into the BTL market just as property prices peaked. Timing was terrible and now this

Cold wind blows in buy-to-let market as cheap loans disappear· First fall in new rental instructions since 1998
· Established landlords continue to reap rewards
Ashley Seager The Guardian, Thursday March 6 2008 Article historyAbout this articleClose This article appeared in the Guardian on Thursday March 06 2008 on p25 of the Financial section. It was last updated at 08:50 on March 06 2008.
Access to the buy-to-let market has become harder for would-be landlords. Photo: Getty

Britain's controversial buy-to-let property boom looks to have become the latest victim of the global credit crunch as new lending to landlords dries up, the Royal Institution of Chartered Surveyors says today. The RICS quarterly lettings survey shows that access to the buy-to-let market, which has been blamed for pushing up house prices and restricting supply to first-time buyers, became harder for would-be-landlords as mortgage products became more scarce.

It shows the first fall in new landlord instructions to surveyors to let their properties since the study began in 1998. One percentage point more surveyors reported a fall than a rise in landlord instructions in the latest quarter. In the previous quarter, the gap was 11 percentage points.

The survey will add to evidence that Britain's long housing boom has come to an end. The RICS said this week that property prices across Europe were likely to fall this year, and other surveys have shown that prices in Britain have started to fall because of a drying up in first-time buyer numbers. Mortgage approvals are down about a third from a year ago.

The buy-to-let sector has become one of the most controversial investment options of recent years, with an estimated 2.5m homes in England being rented from more than half a million private landlords. The market took off in the late 1990s, helped by the introduction of buy-to-let mortgages calculated on the anticipated rental income rather than the landlord's earnings. But the financial turmoil of the last year has limited cheap credit for landlords and there is now a decline in the number of attractive mortgage deals.

"The credit crunch has restricted the number of buy-to-let mortgages approved as well as the number of mortgages available to investors," the RICS said.

But, it added, established investors are reaping the benefits. Gross rental yields - rent as a percentage of a property's value - increased at their fastest pace since Q3 2005. This is because first-time buyers denied a 100% mortgage are now remaining in the rental sector, pushing up demand. The gap is +16 points between chartered surveyors who said they had seen a rise in tenant lettings during the three months as people put off buying their own property, down slightly from the +20 points during the third quarter.

At the same time, between surveyors who said rents were rising and those who reported falls, was 27 points. Although this was down from the 31-point gap during the third quarter of the year, it was still more than double the survey's long-run average. "While banks remain cautious about offering loans, demand for rental property will continue to increase with many would-be-buyers unable to make the jump to home ownership," said RICS spokesman Barry Hall.

"Established investors continue to reap the benefits of the current uncertainty in the housing market and have been enjoying the fruits of rising rents, but new investors are struggling to get the necessary finance to enjoy this buoyant sector."

Hall predicted that some landlords at the margins may desert the market after the drop in capital gains tax occurs in next month. From April, capital gains on rental property will be taxed at a flat 18% while until now they have been taxed at between 40% and 24% depending on how long the property has been owned.

The global credit crunch appeared to take a fresh turn for the worse yesterday as interbank lending rates, known as Libor, rose to fresh two-month highs in London and the eurozone.

The sterling three-month Libor rate rose to 5.77%, more than 50 basis points above the Bank of England's 5.25% base rate. That was the highest for two months.

Paul Dales, economist at Capital Economics, warned that rising Libor rates would have a dampening effect on the British economy because it would raise the cost of borrowing to some businesses and households, just as the Bank of England's monetary policy committee has been cutting rates to reduce borrowing costs.
Posted at 14/4/2008 15:53 by buywell2
BB. might not be the only UK bank needing cash

Bad news from the US will hit these shores soon methinks

Wachovia Posts Loss, Plans $7 Billion Capital Raising (Update6)

By David Mildenberg

April 14 (Bloomberg) -- Wachovia Corp., the fourth-largest U.S. bank, reported an unexpected loss because of bad California home loans, and disclosed plans to bolster capital by selling $7 billion of stock and cutting the dividend.

Wachovia fell the most in 17 years in New York trading after the company said it will sell shares at $24 each, 14 percent less than last week's closing price. The first- quarter loss of $393 million, or 20 cents a share, compared with earnings of $2.3 billion, or $1.20, a year earlier, the Charlotte, North Carolina-based company said in a statement today. Analysts had estimated Wachovia would earn about 40 cents a share, according to a survey by Bloomberg.

Chief Executive Officer Kennedy Thompson, 57, said he was ``deeply disappointed'' as Wachovia posted its first quarterly loss since 2001. The bank's market value has now dropped 50 percent after the ill-timed $24.6 billion takeover of Golden West Financial Corp. in 2006 at the peak of the housing boom, and Wachovia said today the housing slump may not end until sometime next year.

``They obviously didn't take a close enough look at Golden West,'' said Andrew Seibert, a portfolio manager at Nextier Wealth Management in Pittsburgh, which oversees $400 million in assets. The lender's adjustable-rate mortgages, which let borrowers skip payments and add the unpaid interest on to the principal, were ``a formula for disaster by anyone's standard.''

Wachovia also plans to cut 500 investment banking jobs. The bank fell $2.81, or 10 percent, to $25 in 10:02 a.m. New York Stock Exchange composite trading.

Terms of Sale

The new common stock will be priced at $24, and the convertible preferred will pay 7.5 percent interest, according to a company statement. The preferred shares can be swapped for 32.0513 shares of common stock initially valued at $31.20. The offering is oversubscribed, said the bank, which listed a Tier 1 capital ratio of 7.5 percent.

The dividend cut will preserve about $2 billion in capital, according to a report today from analyst Brian Foran at Goldman Sachs Group Inc., who said Wachovia will have raised about $13 billion since the credit crunch began. Goldman cut its price target on Wachovia's stock to $32 from $33.

Washington Mutual Inc., the largest U.S. savings and loan, got $7 billion last week from investors led by David Bonderman's TPG Inc. In all, banks and securities firms, including Citigroup Inc. and Lehman Brothers Holdings Inc., have raised about $140 billion since last year after more than $245 billion of losses tied to the collapse of the subprime mortgage market, data compiled by Bloomberg show.

Seattle-based Washington Mutual reported a first-quarter loss of $1.1 billion, cut its dividend and announced plans to eliminate 3,000 jobs.

California, Florida

First-quarter revenue at Wachovia declined 5 percent to $7.9 billion. Return on equity, a gauge of how effectively the company reinvests profit, was negative 2.1 percent, compared with 13.5 percent a year earlier. The quarterly dividend was slashed to 37.5 cents a share from 64 cents.

Wachovia set aside $2.8 billion for credit losses in the three months ended March 31, mainly because of deterioration in the housing markets of California and Florida. Non-performing assets, including loans held for sale and foreclosed properties, totaled $8.4 billion, or 1.7 percent of loans, widening from 0.4 percent a year earlier.

``Wachovia is now looking almost as bad as Washington Mutual on the mortgage side,'' said David Hendler, an analyst at CreditSights Inc. ``This shows investors have to be more cautious and not take management's word for granted.''

Golden West

Raising $7 billion in new capital would solidify the firm's finances and enable it to start making new acquisitions late this year or early 2009, Hendler said.

Wachovia's biggest transaction was the acquisition of Oakland, California-based Golden West at the height of the housing boom.

Golden West specialized in so-called option adjustable-rate mortgages, which allow borrowers to decide to skip some of their monthly payments and add the amount to their principal. About 58 percent of Wachovia's $120 billion in adjustable-rate mortgages as of March 31 were in California, which ranks among the states hardest hit by the slide in housing prices.

Late payments on Wachovia's option-ARM loans were 3.1 percent, double the previous record during the early 1990s real- estate recession in California, Moody's Investors Service analyst Sean Jones said in a report today. The annualized rate of losses was four times the previous high, he said.

New Model

Profit at the general bank, which includes retail, small business and commercial customers, fell 17 percent to $1.2 billion. Wachovia set aside $422 million more for credit losses because of ``rapid deterioration'' in consumer real estate and auto loans, especially in California and Florida, where prices are falling and foreclosures are increasing.

Those factors, along with ``unprecedented consumer behavior,'' prompted Wachovia to increase its assumptions about how many of its option-ARM home loans will go bad.

``They made a mistake in buying Golden West,'' Seibert said. ``The driver of all this is summed up in one word: Greed. They saw the big dollars and they went for it.''

The corporate and investment bank lost $77 million, the second consecutive deficit after a $431 million loss in last year's fourth quarter. The unit earned $550 million a year earlier. Wachovia cited $1.6 billion in writedowns of securities that included subprime and consumer home loans, commercial mortgages, consumer mortgages and leveraged buyouts. Revenue at the unit declined 54 percent from the year-earlier period.

The wealth management unit's profit rose 9.5 percent to $92 million.
Posted at 29/2/2008 10:39 by zimzoot
Stocks set to extend slump
Futures decline as AIG raises credit fears, Dell posts weak quarterly results; wave of economic data on tap.

NEW YORK�(CNNMoney.com) -- Stock futures tumbled early Friday after a huge loss at insurer AIG raised worries about the credit crunch and investors eyed spiking oil prices and the weak dollar.

At 5:01 a.m. ET, Nasdaq and S&P futures were lower, indicating sharp losses at the start for Wall Street. Stocks sank Thursday

Financial shares are likely to be pressured after AIG (AIG, Fortune 500) reported a massive $5.3 billion quarterly loss late Thursday. The credit crunch slammed the company, which took $11 billion in writedowns during the quarter.

Overseas markets tumbled as investors worried about the ongoing credit crisis. Japan stocks finished the session lower and European stocks fell in early trading.

Also hanging on investors were surging oil prices and the weak dollar. Light, sweet crude for April delivery briefly exceeded $103 a barrel for the first time in electronic trading. The euro, meanwhile climbed to an all-time high of $1.5238 in early European trading.

In the tech sector, computer maker Dell (DELL, Fortune 500) is in focus after the computer maker reported weak quarterly results late Thursday. Dell shares fell 4% in after-hours trading. To top of page
Posted at 21/2/2008 16:00 by tullynessle
Played the webcast earlier today - noted that A & L is not just a "mortgage bank" - only around 27% of profits derive from that source.

The web is an excellent tool for Companies to talk directly to their private investors as well as analysts and journalists - it certainly evens the playing field.

Also it allows considered review by private investors of all facets of their company's business - as opposed to the sensationalist references made by journalists usually to support the short side in these markets.

In the next year or two the role of the financial commentator / journalist / analyst will become more or less redundant,(hopefully), as Managements talk directly to all their investors.


DYOR
Posted at 21/11/2007 14:35 by tullynessle
Information from the Hedge Fund industry.



++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++


Northern Rock Man Group's Fink warns of 'unintended consequences' from hedge fund regulation
Date : 21/11/2007 @ 13:04
Source : TFN
Stock : Northern Rock Plc (NRK)
Quote : 84.2 -12.8 (-13.20%) @ 14:07

Northern Rock Man Group's Fink warns of 'unintended consequences' from hedge fund regulation




LONDON (Thomson IM) - Man Group PLC deputy chairman Stanley Fink has warned
regulators of "unintended consequences" from pushing through hedge fund
regulation and argued watchdogs should allow markets to show their mettle before
rushing to legislate.
Speaking at the Edhec Alternative Investment Days conference in London, Fink
said: "All regulation, unless very well thought through, does have unintended
consequences."
As an example he highlighted the US Securities and Exchange Commission's
ultimately failed attempts to develop a system of hedge fund registration.
He said one result of that move was a number of the most successful hedge
funds changing their investment strategy, "and locked up their investors for two
years... that clearly wasn't the intention" of the SEC, he said.
Fink, who stepped down as Man's chief executive in March, said regulators
should also be "prepared, at times, to sit back and let the market work". He
said the market may well show it is able to rise to the challenge.
Referring to the liquidity crisis resulting from the credit crunch, he
argued that, ultimately, "very few retail investors will come to harm in this
crisis" -- even if some institutional investors, particularly pension funds,
have taken a hit.
Man Group urges regulators to ensure they are totally aware who its rules
are there to protect.
Fink wants them to acknowledge "that no degree of regulation will protect
against fraud." He said a regulator can create as much bureaucracy as it wants,
"but bad guys will still do bad stuff".
Man Group is one of the members of the Hedge Fund Working Group (HFWG),
pushing for "a degree of self regulation, code of best practice (and) common
principles", Fink said.
The group has been designed to encourage managers in UK, but also eventually
in Europe, to go through a process of disclosure, compliance and explanation.
"Where, for certain reasons, disclosure affects your business... where there
is shorting on a position... explanation can clear up that issue", Fink argued.
He said the principles advocated by the HFWG, "follow FSA principles and are
extremely good ones for our industry".
Fink predicts that a number of managers will opt to adopt a voluntary code
of practice following the group's consultation period - it is due to report in
January, 2008.
"I hope that will clear up a lot of concerns that hedge funds exist in some
sort of back water", he said.
"Most activities [carried out] by hedge funds are also being done by (the)
proprietary trading desks of investment banks... they're being done in regulated
entities that often have retail deposits. So to regard hedge funds as if they're
some sort of dark horse of Capitalism... separate from the mainstream, is
perhaps a bit outdated," Fink said.
However, he does also argue that formal regulation is still needed to
protect retail investors, at least to a degree.
Referring to the crisis which emerged at Northern Rock, Fink said: "Retail
investors do deserve protection; they don't really understand credit ratings,
and the sight of a queue if people standing outside a bank is clearly a big
political issue, as well as a big moral issue."
He added: "Having said that, is it right to give them total protection" --
some investors in Northern Rock felt pleased to get 1-2 pct extra premium by
investing their money in High Street banks, he said.
"Did they think that premium came for free or did they think it was free of
risk?... Should the system and the regulator have left them with a 5 pct loss?"
By Ingrid Smith: +44 (0) 20 7422 4955; ingrid.smith@thomson.com.
www.thomsonimnews.com
ims/jad/jad/am
Posted at 14/9/2007 21:36 by drjudywood
Thought you guys might find this interesting:

17TH AUGUST 2007

We are Entering the Worst Banking Crisis in Decades - Stock Market to Fall by another 20%

On the 3rd April 2007 Blue Planet Investment Management, the manager of some of the most successful financial funds in the world, issued a press release (copy attached) predicting that the bear market had started, the credit cycle had turned and that stock markets would fall sharply.

Ken Murray, who manages Blue Planet's Worldwide Financials Investment Trust, the 2nd best performing financials funds in the world over 3 years and the best performing investment trust in the UK in 2006, has the following sobering prediction "Just as that was predictable what will happen next is also predictable. We are entering one of the greatest banking crises in decades. The credit cycle has turned, bad debts are soaring, banks will go bust and stock markets will fall much further. People need to be told the truth as opposed to being spoon fed palliative words."

The Problem:
Stock markets have fallen as investors have begun to appreciate that banks are facing "liquidity problems". These liquidity problems relate to the short end of the money market. However, this is only a symptom of much deeper problems - mounting bad debts and the inability of banks to sell on loans that they have originated in the expectation that they would be able to re-sell them. The instruments most affected are securitised mortgages and loans to fund private equity transactions. The market in mortgage backed securities has now all but ceased to exist as investors, hurt by huge potential losses, spurn them. Indeed, early indications are that losses on mortgage-backed bonds will be huge. Merrill Lynch recently tried to sell mortgage-backed bonds it seized from the failed Bear Stearns hedge funds and failed to find any buyers after allegedly offering them out for as little as 11 cents in the dollar. The true extent of these losses will become apparent when banks and funds next have their accounts audited.

Investors are now very fearful of those markets and it is unlikely that any meaningful liquidity will return to them for a long time. It is the lack of liquidity in asset backed securities markets and the unwillingness of sound banks to lend to troubled banks that is generating the liquidity problems in the money markets. Ken Murray adds "Banks understand the situation that is developing and they are increasingly unwilling to lend to other banks that they perceive to be risky. Investors should take heed of this warning."

The inability of banks to sell on loans that they have written for re-sale causes them serious liquidity and capital adequacy problems. Often when banks commit to provide loan facilities they do so without knowing whether they will be able to sell on the resultant assets. Some banks have become complacent about this risk following a period of good demand for such securities and saw these facilities as no more than bridging finance. A collapse in demand for these securities means banks can no longer sell them on and what they grew to see as bridging finance is now fast becoming long term finance.

Furthermore, the banks that are experiencing liquidity problems will see those problems worsen. This is because they have already undertaken to lend an estimated $330 to $420 billion of loans much of which they will be unable to sell on with the consequence that those loans will have to be retained on their own balance sheets: balance sheets which are simply unable to sustain them. Every time a loan is drawn down cash goes out to be replaced by highly illiquid, poor quality assets that no one wants to buy. Ken Murray says "this conveyor belt of death will suck the liquidity out of investment banks and fill their balance sheets with bad debts. I would not be surprised to see one or more of them become insolvent in the near future."

We have no doubt that central banks will act to try and avert the rapidly developing crisis but there are limits to what they can do. Supplying liquidity through the money markets will mask the problem and hide it from investors for a while but it will not resolve it.

The Worst Has Yet to Come:
Not only do the affected banks face a growing liquidity crisis (one of the major causes of bankruptcy in the banking sector) but they also face a more serious problem, albeit one that will take longer to develop. That is the problem of a rising tsunami of bad debts which will go on to overwhelm many of them. Years of excesses in the investment banking markets and the $8 trillion US mortgage market are coming home to roost. Bad debts in the US mortgage market are already at record levels, with worse to come. $275bn dollars worth of mortgages are due to reset to higher interest rates between now and the end of December. In 2008, a further $684bn will reset. Many borrowers will not be able to meet these higher borrowing costs and will go into default. By then unemployment is likely to be rising as the credit cycle bites and economies slow. This combination of rising unemployment and interest rates is the "worst case scenario" so far as lenders are concerned. Bad debts are set to soar.

How to Make Money from the Crisis:
These problems do not affect all banks. Retail banks in strong, soundly run, emerging economies such as Russia continue to grow rapidly and should be largely immune from these problems although they may suffer short term price weakness. The problems are, for the time being at least, restricted to investment banks, other banks that have been active in the capital markets and US mortgage lenders. In addition to the originators of these loans, the other main losers will be investors in securities derived from them.

Ken Murray says "It will take about 12 to 18 months for the banking market to absorb these losses and to stabilise at which point there will be good investment opportunities to be had. Blue Planet has liquidated investments, stripped our portfolio down to a small group of retail banks with good growth prospects and that are not exposed to these problems, eliminated gearing, hedged our remaining investments and raised cash in anticipation of much steeper falls to come in shares. We have locked in some of the very large profits we have made in recent years and armed ourselves with cash so that we can re-enter the market when it has stabilised."



Ken Murray has called this spot-on...

Your Recent History

Delayed Upgrade Clock