'UK braced for US banking backlashCity warns of more pain coming its way after failure of a California bank and talk of a federal takeover of US mortgage lenders
The British economy is braced for further turbulence this week as the fallout from the second largest bank failure in US history spreads across the Atlantic. Last week's extraordinary decision by the US Federal Reserve to take over the Californian bank, Indymac, comes as the Bush administration attempts to quash speculation that America's two largest mortgage lenders, Fannie May and Freddie Mac, also face nationalisation.
Rumours swirled last night that they may have to be bailed out this week after their shares fell sharply on Wall Street. And City experts are now warning that the problems facing the US are a harbinger of things to come in Britain.
Terry Smith, an influential City commentator and chairman of stockbrokers Collins Stewart, said: 'It is every bit as true today as it was in the Thirties that, if America sneezes, the rest of the world will catch a cold.' Asked if he thought the crisis had reached its zenith, Smith said: 'We are nearer the beginning than the end. I'm afraid there is going to be more pain - quite a lot, actually.'
Liberal Democrat Treasury spokesman Vince Cable said: 'Things always tend to be more dramatic in the States, but what happened at Northern Rock showed us that there is an extraordinary amount of complacency by the authorities on this side of the pond.'
Both British and US banks are seeing their share prices fall as house prices continue to slide. 'Prices are already down eight per cent in the UK and quite conservative forecasters reckon that the extent of the collapse from peak to trough could be 30 per cent,' said Cable.
Further house price falls could have serious repercussions for the wider economy, he warned. 'The economy is on the way down,' he said. 'We have already seen the credit crunch affect banks, house builders and retailers - a recession is quite possible.'
A move by the Federal Reserve to nationalise Fannie May and Freddie Mac, which together account for 40 per cent of all US mortgages, would send dire signals around the world. The two lenders urgently need to raise billions of dollars to offset expected losses stemming from mortgage defaults, but cannot seek additional cash from their shareholders. Between them, the two guarantee or own mortgages worth more than $5 trillion.
Fears over the impending collapse of Indymac last week saw a massive run on deposits as frightened customers looked to withdraw cash. Amid chaotic scenes, customers pleaded with staff to be allowed to enter the bank after it shut its doors. One woman leant on the locked doors, pleading with a teller: 'Please, please, I want to take out a portion.'
The bank's branches were closed this weekend, but will reopen tomorrow as Indymac Federal Bank. Deposits of less than $100,000 are guaranteed.
Indymac's failure had been widely expected, as the bank shut offices and laid off employees to cope with huge losses from defaulted mortgages taken out at the height of the housing boom. Meanwhile nervous depositors were pulling out $100 million a day, according to observers.'
Rumours swirled last night that they may have to be bailed out this week after their shares fell sharply on Wall Street. And City experts are now warning that the problems facing the US are a harbinger of things to come in Britain.
Terry Smith, an influential City commentator and chairman of stockbrokers Collins Stewart, said: 'It is every bit as true today as it was in the Thirties that, if America sneezes, the rest of the world will catch a cold.' Asked if he thought the crisis had reached its zenith, Smith said: 'We are nearer the beginning than the end. I'm afraid there is going to be more pain - quite a lot, actually.'
Liberal Democrat Treasury spokesman Vince Cable said: 'Things always tend to be more dramatic in the States, but what happened at Northern Rock showed us that there is an extraordinary amount of complacency by the authorities on this side of the pond.'
Both British and US banks are seeing their share prices fall as house prices continue to slide. 'Prices are already down eight per cent in the UK and quite conservative forecasters reckon that the extent of the collapse from peak to trough could be 30 per cent,' said Cable.
Further house price falls could have serious repercussions for the wider economy, he warned. 'The economy is on the way down,' he said. 'We have already seen the credit crunch affect banks, house builders and retailers - a recession is quite possible.'
A move by the Federal Reserve to nationalise Fannie May and Freddie Mac, which together account for 40 per cent of all US mortgages, would send dire signals around the world. The two lenders urgently need to raise billions of dollars to offset expected losses stemming from mortgage defaults, but cannot seek additional cash from their shareholders. Between them, the two guarantee or own mortgages worth more than $5 trillion.
Fears over the impending collapse of Indymac last week saw a massive run on deposits as frightened customers looked to withdraw cash. Amid chaotic scenes, customers pleaded with staff to be allowed to enter the bank after it shut its doors. One woman leant on the locked doors, pleading with a teller: 'Please, please, I want to take out a portion.'
The bank's branches were closed this weekend, but will reopen tomorrow as Indymac Federal Bank. Deposits of less than $100,000 are guaranteed.
Indymac's failure had been widely expected, as the bank shut offices and laid off employees to cope with huge losses from defaulted mortgages taken out at the height of the housing boom. Meanwhile nervous depositors were pulling out $100 million a day, according to observers.'
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