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Sub prime misery set to continue indefinitely

15 November 2007
The sub prime saga continues to rock the financial markets from the US through to Europe after several of the major high street banks chalked up substantial write-offs as the credit crunch continues to eat into consumer finance markets.

Both HSBC and Barclays have announced figures for losses accumulated since the sub prime mortgage crisis began last summer in an attempt to quell investors’ fears that the economic situation is still far from stable.

Reports suggest that HSBC was the first financial group to register problems when the sub prime crisis began. According to Chairman Stephen Green, bad debts have been spreading from the mortgage business to other loans, such as credit cards, as consumers find it increasingly difficult to obtain credit and the number of debtors grows. However, he added that while delinquency rates were up, they were lower than those of previous downturns.

The recent volatility in Barclays’ share prices has also prompted fears that it too has been overexposed to the sub prime debacle. This has forced the board to release an emergency interim statement two weeks ahead of schedule in order to dismiss the pessimistic evaluations of £10 billion worth of write-offs as rumours.

Likewise HSBC, the world’s second largest bank, has reported a steep rise in US bad debt charges after defaults and late payments on US sub prime mortgages increased in the third quarter causing the bank to write of $3.4 billion (£1.7 billion).

Furthermore, HSBC, which is quickly gaining the reputation as the bellwether for disruptions in the world economy, has also declared that the emerging markets will not escape the credit crunch despite having so far remained unaffected by the turbulent financial markets as things are set to stagnate further.

The gloomy outlook, however, has been counteracted by the news that HSBC profits have risen ahead of last year. Shares in the bank rose nearly 2.7 per cent gaining 32p to 866p, which was achieved predominantly by avoiding investing in mortgage-backed securities.

Despite the positive reports, the bank is preparing to shed jobs after announcing the closure of a further 260 HSBC Finance branches, on top of the 1,000 already earmarked for the chop. Barclays, on the other hand, remains tight lipped about whether they too will be closing branches and cutting jobs.

© Fair Investment Company Ltd