Everything from Banks to football shares affected by the sub prime crisis

16 November 2007
Banks, ratings agencies, football shares, the Libor, inter-bank relations, oil – there are seemingly endless aspects of the global economy which are being affected by the fallout from the sub prime mortgage crisis in America.

Some of the biggest banks in the world are being hit by the subsequent credit crisis, with another one announcing losses almost every day. Today is Barclays’ turn, revealing a writedown of £1.3 billion on its US sub prime mortgage investments, with £800 million of that lost in October alone.

Barclays boss Bob Diamond said that the full effects of the sub prime crash will be revealed over the next two years, but that he was hopeful of a thaw in the credit markets in the new year. Barclays’ shares fell a further 2.5p in wake of the news. Alliance & Leicester shares have also taken a beating for the third session in a row at the hands of the credit crunch

The crisis, caused largely by a massive influx of new lending business as a result of cheap money, is now hurting the banks that were benefiting from the flood of low cost loans. Now, banks are still reluctant to lend between themselves and the Libor (the rate at which banks lend to each other) has risen further from 6.3% to 6.3425%.

Experian, the world’s largest credit check agency, experienced a 20 per cent drop in share price yesterday and had £600 million wiped off its value were both hit after its chief, Don Robert, announced slowing sales growth at its US and UK branches as lenders cut back in an attempt to limit their exposure to the sub prime crisis. Shares in the company had already lost a quarter of their value since the summer.

Euromoney has lost more than 13 per cent of its share price after the firm announced that next year would bring further challenges from the sub prime crisis and that the full extent of the damage could not be predicted. Even shares in football teams have been hit, as investors in squads pulled money out as they realised they could be adversely affected by the global economic shake-up.

It’s not all doom and gloom, however, as 14 families were saved from being made homeless by an American bank which prevented Deutsche Bank from making repossessions, because it could not be determined which lender should be the rightful owner of the properties. The nature of the sub prime market has been such that mortgages are bundled up – sometimes in their thousands – and sold off, but it is unclear where each of these mortgages have ended up.

It is also for this reason that banks are having difficulty predicting the total impact of the credit crisis – estimates range from $100 billion to $500 billion.

© Fair Investment Company Ltd