UK Banks Wait For Sub-prime Issues To Come To The Fore
August 19, 2007
Results from the Big Five banks in the UK last week showed massive profits, with HSBC top of the pile, with a huge £6.9bn profit for the six months to June 2007. They were followed by Royal Bank of Scotland at £5.1bn and Barclays at £4.1bn; all the top high street banks could boast double-digit percentage profit growth.
Despite these apparently impressive figures, shares of UK banks continued their slump alongside banking stocks across Europe and the US. Why? Thanks to the US sub-prime loans crisis.
The crisis in the US is causing concern in the UK for fear it could happen here too. So far UK interest has been focused on the banks’ exposure to doubtful US mortgage lending via tradable Collateralised Debt Obligations. Of UK banks, HSBC has lost most on CDOs.
The problems may really come when the extent to which UK banks are exposed to sub-prime failures in this country.
In the last week the Council of Mortgage Lenders (CML) has reported that 1.1% of mortgage loans have fallen behind since January. Obviously the interest rate rises imposed by the Bank of England have had an impact on whether people can actually afford their mortgages. Although higher than it has been it is by no means a record and in the US the figure is much, much worse: 4.8%.
With sub prime being an issue the use of debt consolidation loans are now starting to become more popular
The CML was concerned enough to withdraw its forecast for arrears so, it said, to be able to properly gauge the impact of the increase of sub-prime lending in the market overall.
Meanwhile, Bear Stearns, the US investment bank at the centre of the crisis in the US has had its credit rating downgraded and US markets slumped in response. The US credit market was said to be as bad as it has been in the last 20 years. Twice before in 2007 Bear Stearns has caused problems in the market, following June’s announcement of fund problems and July’s announcement of problems fur to the sub-prime market.
It remains to be seen what will happen in the UK due to the sub-prime market.
