On The Edge
After RBS comes HSBC; the old Midland Bank is widely expected to announced a rights issue in the order of £9bln to shore up it’s Tier 1 capital and off-set a £4bln write-off in Alt A (sub-prime) US mortgages. It is quite ironic that the big banks are writing down their balance sheets at a rate of knots and yet it is the “smaller” players, which have quality assets and no sub-prime exposure, that attract the fire of the financial press and “shorting” hedge funds.
The only real figure of interest released last week confirmed the weakening economic trend. Retail sales volumes declined by 0.4% last month and advanced by 4.6% in the year. Whilst the quarterly comparisons held up quite well the Director General of the British Retail Consortium confirmed that sales were only advancing due to deep discounting.
The other main story of last week was the release of the minutes of the Bank’s meeting earlier this month. The final vote was 7-2; arch dove David Blanchflower was looking for a 50 point cut. The two dissenters, Tim Beasley and Andrew Sentence (both hawks of note) argued that a cut in May coinciding with the release of the Quarterly Inflation Report was more appropriate. Both conceded that whilst there is a significant near-term threat from inflation a deep recession is the greater threat. However, we feel that whilst weakening demand will elicit further easing of monetary policy cuts will not be as frequent as many first thought.
Looking ahead to this week, the CML announces the levels of mortgage lending and mortgage approvals for March on Wednesday. Analysts are expecting a marked decline in approvals – down from 73,000 to 65,000 – in line with increasing mortgage rates and stiff eligibility criteria. Further evidence from the housing market comes on Wednesday with the announcement of the Nationwide Building Society’s housing survey. Prices are expected to have declined by 0.5% in April leaving the 12-month figure at zero. If the actual figure puts the annual rate in negative territory then the “chicken lickens” of the press will have a field day announcing the end of the financial world (again).
27 / Apr / 2008