Banks May Go To Shareholders For Cash
Ξ January 16th, 2008 | → 0 Comments | ∇ Fitness |
The Bank of England has warned that some major banking groups could be forced to go begging to their shareholders in a bid to raise extra cash and bolster their balance sheets.
Markets director at the Bank Paul Tucker said to a conference in London that ‘some replenishment of common equity may be needed’ as massive losses continued to be revealed as a result of investments into secured loans sub-prime markets. Fund raising has already begun at Citigroup and UBS, and may more may follow.
Earlier in the week central banks from the US, the UK and Europe promised to inject $100bn into world banking systems in an effort to help banks’ cash flows, and the forecast of rights issues emphasises how badly banks are coping in the credit-squeezed markets.
The move by central banks failed to boost confidence in the City and the FTSE 100 index closed down over 195 points on Thursday at 6364.2. Some senior bankers think the move has come too late and some feels it looks a like a move of desperation; others feel more is needed.
There was a positive effect on inter-bank loan rates which fell in the US, the UK and the eurozone as rates fell, but possibly not as much as had been hoped.
Tucker said that he was deeply concerned about how the credit crunch might affect the wider economy, warning of a ‘vicious circle’ where a reduced supply of credit would lead to reducing house prices and falling markets, speeding up the possibilities of a worldwide recession. The UK is on a firm base, but he described household finances as being ‘vulnerable’ and property prices ‘stretched’, and suggested that the turmoil in the financial markets was not just a City event.
Economist James Knightley, of ING bank, warned: “We have seen only a small easing in the credit markets. It could be pretty tough out there for the UK economy next year.”