The after-effects of the US sub-prime fiasco continue to impact on companies and consumers alike, with some anticipating that the current credit crunch situation may last until next Christmas.
According to the Financial Times, many private equity firms are suffering as: “Fears about the impact of the credit squeeze on consumer spending and the housing market has eroded the value of debt issued to fund private equity acquisitions of companies stretching from retail to property.” Moreover, credit insurer Atradius is warning of a slowdown in trade. It says that more companies are putting off paying suppliers and that this is leading to “a number of medium-sized companies going under.”
Finance companies particularly appear to be struggling. The London Interbank Offered Rate (LIBOR) – the rate at which banks lend to each other – increased to just under 6.45 per cent on November 19, far exceeding the 5.75 base rate and banks appear to be building up liquidity in order to protect themselves from any significant hits in the future.
Swiss Re has already taken a £524 million hit from the sub-prime mortgage debacle, and experts predict that Citigroup will suffer losses of $13 billion (£6.3 billion) in the next six months or so. Furthermore, Alliance and Leicester and Bradford and Bingley, among others, have reported significant share slumps in the last 24 hours. Overall, the FTSE 100 fell 2.7 per cent on November 19, its lowest point since the credit crunch started in August.
Meanwhile, many consumers are also finding it difficult to obtain credit as a result of the global squeeze. New research from MoneyExpert.com shows that average rates on unsecured loans of £5,000 are now nearly 9.5 per cent. It states that lenders are employing stricter rules on applications, and that some companies have withdrawn from the unsecured loans business altogether.
The company’s research reveals that almost 2 million adults had loan applications rejected in the six months to September 30 compared with 1.39 million in the previous six months. “Borrowers are feeling the pinch with those wanting to borrow less getting squeezed the most,” said chief executive, Sean Gardner. However, those wanting to borrow more than £5,000 are more likely to find a lower rate of interest.
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