Guardian UK: UK braced for US banking backlash

[marmar]

UK braced for US banking backlash
City warns of more pain coming its way after failure of a California bank and talk of a federal takeover of US mortgage lenders

Richard Wachman, City editor
The Observer, Sunday July 13, 2008



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. .....(more)

The complete piece is at: http://www.guardian.co.uk/business/2008/jul/13/banking.creditcrunch