Free-fall in Madrid

The Spanish benchmark index IBEX-35 briefly fell below 13,000 points yesterday for the first time in 15 months as the market went into free-fall.



The rest of the European stock markets followed the same trend, "bear market". Not only the european stocks are being affected by the threaten of a global financial crisis but also the rest of the world´s economies. In fact, Asian equities tumbled by the most since 1990 today.



The big question now is whether these brutal corrections in the market will turn into a global economic contraction.



Euro-area finance ministers are positive about the UE financial situation, meanwhile, some analysts are more pessimistic about the it as they think share markets are bringing forward something really worrying.



But something we should sticked in mind is that on the stock market one must look at long-term trends instead of at short-term ones, as it could make worse the actual situation.

Everybody happy, if possible

The Virgin consortium was selected as the preferred bidder after an intense weekend of talks with Northern Rock´s board directors and the tripartite authorities.

Sorting out The Rock mess is not being a very easy task for both the company board and the authorities as the solution must satisfy six tough conditions:

1. To get the taxpayer out without losing money.
2. To mantain the financial stability.
3. To protect depositors.
4. To satisfy shareholders interest.
5. To protect jobs in the bank.
6. And to meet EU rules designed to prevent governments distorting competition across Europe.

The Virgin bid appears to have the opportunity to meet the six requirements, because it is understood its offer consists on an immediately repayment of 11 bn pounds to the Bank of England. Furthermore, Richard Brandson will inject some of his own money into the bank. And deposits in Northern Rock are still guaranteed by the government.

However, Northern Rock shareholders may be a tougher group to satisfy, as they consider bidders´proposals not enough. In fact, the largest shareholder raised its stake in a sign of its determination to block Sir Richard Branson´s takeover of the "Blackbird" on Tuesday. The problem is that they are afraid of being left with a massively diluted stake in the bank if the Virgin´s proposal goes ahead.

In conclusion, although Virgin offer is the favourite one right now rival bidders could press their proposals offering better conditions than Richard Brandson´s one.

It was likely to happened

Norhern Rock´s two largest shareholders have asked the board for holding an extraordinary meeting in order to talk about the currently bank´s situation and to be considerated before making a definitive decision about Newcastle lender´s sale.


On one hand, there is SRM Global, which is the hedge fund run by former UBS trader Jon Wood. It now holds 6.44 pct stake in the bank as it raised it 0.27% on tuesday. The other big shareholder is RAB Capital, another hedge fund, own 6.56% of the bank which makes a total of 13%. together.


They have expressed their displeasure about the goverment behaviour, as they feel that the board have almost ceased to consider shareholders as an important constituency. But does they have any power actually?http://financialmediaandcomms.blogspot.com/


On the other hand, UKSA is supporting their EGM requisition as it made an annoucement yesterday, telling they think it is important that shareholders have a say in the outcome of what happens to their company and the assets of the business.http://www.uksa.org.uk/UKSA_Press050_Northern_Rock_EGM_Requisition.pdf


To sum up, their main goal is protecting their interest against a cheap sell-off of the bank´s assets to save Government blushes with speedy conclusion to the crisis, as the deadline of Bank of England´s loan to support Northern Rock is on February 2008. However, the bank share price at record lows seem unlikely to make a profit, in other words, they will try to loss as less as possible.

"We´re open"

Despite stricken mortgage lender Northern Rock may see the value of its equity wiped out and is expected to owe the Bank of England for years to come, the bank goes on trying to recover customers´confidence in order to have their funds reinvested in the company.http://www.northernrock.co.uk/



A briefing memorandum prepared for prospective buyers of the bank by its advisers has just appeared. The most likely options may suggest that shareholder value will be disappeared and that the bank will have to rely on funding from the Bank of England until 2010. http://www.ft.com/cms/s/0/bdc07a86-91d9-11dc-8981-0000779fd2ac.html



On the other hand another possible bidder for the bank appeared last weekend. The potential buyer in question is Luqman Arnold, the former UBS executive and chief executive of Abbey. Mr Arnold is proposing to help the bank through his investment group Olivant Advisers. http://www.olivant.com/press-releases/



To sum up, the "Blackbird´s" future is still a big mystery in the financial market, something which may not help its shares price performance in the short term.

In the last year and a half the value of the Shangai stock exchange increased by 235%. The stock markt frenzy has spread all along China´s coast, where the country´s most industrialized area is. It is not unusual for university students to gamble on stocks the money they have to cover room and board expenses as well as school fees. Furthermore many securities analysts and investors consider a good investment as official statistics suggest strong groth in the chinese consumer market. http://www.atimes.com/atimes/China_Business/II19Cb01.html

In fact PetroChina Company Limited became the world´s largest listed company last week. http://shuangfinance.blogspot.com/2007/11/petrochinas-value-tops-1-trillion.html

On the other hand, some investors believe China´s market is displaying many of the classic warning sings of a bubble. They think there is a frenetic speculation in Shangai which is likely to end in tears if the government does not do something soon and effectively. http://news.bbc.co.uk/1/hi/business/7068116.stm

"Enron of Spain"

14th May 2007, a year after the collapse of the stamp trading companies, Afinsa and Forúm, uncertainty remains for those who fear the loss of the investments. Some 460,000 people have lost money, some of them their life savings in the collapse, and experts say the chance of them getting any sizeable percentage of their money back is small. It comes as the Prosecuting Office has announced that they think the financial black hole in the two companies is even larger than previously thought – at more than €.4.7 billion. .

There were related plenty of disconsolate personal stories http://news.independent.co.uk/europe/article364617.ece
As Afinsa and Forum Filatelico are not strictly financial companies, they are not covered by Spanish Goverment guarantees .
The question everybothy ask theirself is, how could two societies like Afinsa and Forum set up a swindle that last 25 years without any authority taking notice of it?

On the other hand, the return rate in pensions' plans was in some case between 14 and 16%, when the normal rater in other ones were 7'22%. And one of the financial principle is the higher return the more risk it is attached. Moreover, investigators reckon some of the stamps were overvalued by up to 900%, this means almoust nobody checked if their stamps' value was correct. In fact, Spain's consumer groups said they had long warned investors against giving money to the firms.

More than one year later swindle's victims keep fighting for recover their money.http://www.afectadosfilatelia.org/

Worries in Mortgage Industry

The global credit squezze is making both lenders and brokers be worried about market´s future, therefore appetite for new mortgage lending is being reduced.



Ray Boulger, technical director at mortgage brokers Charcol, says that the new business market has been about 20% down in September and October.



One of the consequence is going to be job losses. Many mortgage lenders are announcing they would reduce its workforce by cutting posts. "Bank of America to cut 3000 Jobs After Trading Loss" was one of Bloomberg´s breaking news today.http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ7Eg4rVeGJ4&refer=home



There is uncertainty too for the 6500 staff employed at Northern Rock. It is unlikely that any potential owner will want to write the same volume of mortgage lending in the future.



On the other hand, falling house prices is another worry added. In fact, house prices are falling for first time in two years, according to the Royal Institution of Chartered Surveyors.http://www.thisismoney.co.uk/mortgages/house-prices/article.html?in_article_id=424291&in_page_id=57



It is likely the economy will suffer a dramatically slow consumer spending as a concequence and this could be the start of a recession.