Global Stocks Decline on Northern Rock Troubles

123jump.com Staff
17 Sep, 2007
New York City

Stocks in New York are pointing sharply lower opening ahead of the Fed meeting tomorrow. European stocks declined on widening subprime credit squeeze. Northern Rock, fifth largest mortgage lender, in UK fell 35% after losing 31% on Friday. Other bank and financial stocks are trading lower in Europe. Asian markets closed lower. Japan is closed for a holiday.

[R]8:00AM New York, 12:00PM London – Stocks in New York are likely to open sharply lower. European stocks are falling at mid-day trading. Asian markets closed lower.[/R]

Market indexes in New York are expected to open lower ahead of the Fed meeting tomorrow. Index futures are pointing at least 0.5% decline in Dow, S&P 500, and Nasdaq indexes. Former Chairman of the Federal Reserve said on televised interview that the economic outlook for the U.S. economy is ‘gloomy’.

In the overnight trading in Asia markets fell. Singapore led the region with a loss of 1.7% followed by losses in Taiwan of 1.5%, 1.2% declines in Hong Kong and Thailand. India fell 0.6%, Australia edged 0.5% lower. Shanghai led the few rising markets in the region with a gain of 1.9%. Japan was closed for a holiday.

In Hong Kong property stocks fell. Sun Hung Kai fell 4.5%, Hang Lung Properties declined 5.4%, and Cheung Kong plunged 6% after investors sold stocks in the sector ahead of rate decision from the U.S. Fed.

Samsung Electronics dropped 2% after it received investigation notices from the U.S. Department of Justice for the alleged price fixing in the flash memory market. Toshiba in Japan and SanDisk in the U.S. were other companies implicated in the price-fixing schemes.

Australian market fell after BHP Billiton declined more than 1.5%. Macquarie Bank declined 2.5% and National Australian Bank declined 1.5%. Local press reports suggested that NAB may be interested in acquiring troubled UK lender Northern Rock.

European markets at mid-day trading are trading sharply lower dragged by banking stocks. Spain led the decliners with a loss of 1.7% followed by declines of 1.5% in France, 1.4% in UK, and 1.2% in Italy. Top nine markets in the region fell.

Northern Rock fell more than 35% at mid-day as depositors continue to pull money from the bank. The depositors have pulled $2 billion from the bank according to BBC report Merrill Lynch lowered its earnings estimate by half for the lender and stated the company likely to be acquired in the near future. The independent lender, the fifth-largest in the UK, is sough emergency lending last week from the Bank of England. The BoE lent 4.4 billion pounds and urged to the general public that the bank’s operational difficulties are temporary. However, depositors ignored the BoE and lined up to withdraw the money.

The largest rescue of a bank in the UK has depressed stocks of mortgage lenders. The UK bank deposits of 31,700 pounds are secured by the Bank of England. Investors with larger depositors were worried and quickly decided to withdraw money.

Northern Rock had relied for 63% of its funding needs from the volatile capital markets. The other banks fund their mortgage lending operation from the its deposit base and other long term debt obligations. The short term nature of funding from the capital markets and market volatility has put several lenders in the U.S. and UK on the edge. Bank stocks have dropped 14% for the year but mortgage lenders have fallen sharply in the wake of the U.S. subprime mortgage crisis. Bradford & Bingley and Alliance Leicester the other two large UK lenders have declined more than 12% in London trading at mid-day.