US problems expected to spread to UK
The crisis at America’s biggest mortgage firms Fannie Mae and Freddie Mac may be occurring across the Atlantic but the shockwaves will be felt in the UK, experts warn.
Speculation that US regulators were last night preparing to step-in to rescue the two companies, which are owned by shareholders but have government-sponsorship, was greeted with concern in the City.
Justin Urquhart Stewart, director at Seven Investment Management, said there would be indirect repercussions for British banks and markets – with both confidence and liquidity being severely affected.
“In terms of liquidity, the more money that is used in propping up these two organisations, the less there is available for other investment areas, which therefore causes a knock-on effect in the global banking community.”
Ian Stewart, Director of Deloitte Research, said the events in America would affect business confidence as it showed the financial crisis had widened and was hurting institutions that were effectively underwritten by the Federal Government.
“A year ago there was an argument that this was quite narrowly focused problem in the area of subprime, but we are seeing evidence of a broadening of the nature of financial stress.
“I think it shows the problems are cycling from exotic, relatively new financial instruments into more conventional types of institutions such as Freddie Mac and Fannie Mae.”
The events in America come as Deloitte released a survey showing three quarters of FTSE chief financial officers believe the worst of the credit crunch is yet to come.
The survey also found that debt is out of favour, with the majority of the 83 CFOs questioned taking the view that the UK corporate sector is overleveraged.
However, CFOs sentiment about the outlook for M&A and private equity activity has improved. The majority of directors also believed that UK equities are undervalued and that the FTSE will rise over the next year