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.

Re-instating its position

The latest bidder reported to making a move on Northern Rock is Virgin Group. This airline, media and gyms group is one of the world's most recognised and respected brands. Furthermore, a recent independent research study has shown that UK public vote Virgin as their most admired brand. http://www.virgin.com/AboutVirgin/WhatWeAreAbout/WhatWeAreAbout.aspx

This fact could be decisive to repair its franchise and to recover the confidence of its shareholders. Moreover, Northern Rock shares closed up 5'9 percent at 273'25 pence on the London Stock Exchange following Virgin's announcement.

On the other hand, the bank's chairman Matt Ridley has stepped down. Ridley told the Treasury Select Committe on Tuesday, that the bank had been hit by "wholly unexpected" events and he defended the way he and his colleagues had been running the bank. http://news.bbc.co.uk/1/hi/business/7052828.stm

It is said that Bryan Sanderson would take over as chairman of the bank as soon as he has been approved by the Financial Service Authority.

Will be Spain after Northern Rock?

Spanish officials have denied reports that the country's property market is heading of a crash and that its financial institutions had required emergency liquidity along the lines of Northern Rock.

The Bank of Spain Governor Miguel Angel Ordonez said that the current market turbulence has increased uncertainty in Spain, as everywhere else. He asked for more transparency in the market, " The biggest favour banks can do is to come clean on losses" http://www.forbes.com/feeds/ap/2007/09/18/ap4129672.html. However, it is known that this is difficult to achieve.

On the other hand, Spanish banks' shares have fallen almost 40 pc since April, as the credit crunch is changing the picture for Spanish lenders. It is expected the turmoil to affect big Spanish companies which want to borrow money to finance their expansion. Furthermore, an economist at the Instituto the Empresas business school in Madrid estimates haf a million families will have trouble paying their mortgages if euro interest rates, which have double in two years, rich much further.

To sum up, banks will all be affected by a drop in confidence, which is really damaging for the market.

Northern Rock too risky

While it is especulating about possible bidders for buying the bank, stockbrokers are advising shareholders to sell their shares ahead of a bid, as the stock is too risky for any investor who is not prepared for large losses.

Although last week Northern Rock share's value was buoyed by speculation that a bidder would emerge, stockbrokers warn there could be further falls.

Furthermore, many financial experts agree that there could still be very negative news for shareholders, because the situation is changing on a daily basis and analysts are having some difficulties to value the company. The main problem is that there is no guarantee that the company will even be bought at market price and this would be terrible for shareholders.

The last new about Northern Rock's bid is that Citigroup is ready to provide more than £5 billion in financing to ease the way for a takeover of the bank. Citigroup is a mayor American financial services company based in New York City http://www.citigroup.com/. The final terms of the deal are still being negotiated. This fund would be very important for Northern Rock, as the Bank of England can not provide liquidity to it for ever.