UK Banks Fall, Home Prices Decline

123jump.com Staff
09 Oct, 2008
New York City

Banks in UK are likely to tap as much as

[R]1:00PM New York, 6:00PM London - U.K. house prices decline 12.4% to £172,108 in September. Leading banks in London are likely to tap the recently set up fund and tap as much as £18 billion.[/R]

London market averages slumped in today’s trading as banks continued to hoard cash despite the interventions by the Bank of England to bailout financial institutions. The Libor rate for three-month dollar loans stayed at record level to 4.75%.

Commodity stocks however helped to trim losses.

Market Sentiment

In London trading FTSE 100 dropped 1.21% or 52.89 to 4,313.80.

Of the FTSE 100 stocks 55 increased, 46 declined, and 1 was unchanged. HBOS Plc led advancers in the index shares on the hopes that the decline in home prices has stabilized.

Barclays, RBS, Lloyds Prepare to Raise £18 billion

Barclays Plc led the decliners in the FTST 100 index with a loss of 13%. Barclays and three other leading banks are working on a plan to tap the government stabilization fund. Barclays is likely to tap between £3 and £4 billion and sell preference share to the UK government to raise its tier 1 capital ratio to 10%.

The bank has lagged others in lowering values of its securities portfolio. The bank continues to deny it needs additional capital but sources within the UK Treasury confirm that the bank and others are working on a plan to tap the government fund.

HBOS, the troubled mortgage lender is likely to sell preference shares of £8 billion and Lloyds TSB is expected to raise at least £2 billion. However, RBS may be forced to raise as much as £9 billion.

U.K. House Prices Drop 12.4%

HBOS Plc reported on its Web site today that U.K. home prices declined 1.3% from a month earlier and 12.4% from a year ago to £172,108 in September.

House prices also slid 5.2% in the third quarter ended September from 5.1% in the second quarter.

The mortgage lender added that rising fuel and food prices, which rose by 25% and 13% respectively in the last year, the decline in real incomes that saw earnings at 3.5% lag behind the Retail Price Index at 5%, reduced disposable income and made it increasingly difficult for potential new house buyers.

The housing market is beginning to show signs of stabilizing as mortgages approved to finance house purchases were unchanged at 32,000 in August compared with 33,000 in July.

However, the approvals were 70% lowered than August 2007.

In addition, completed property sales in August 2008 were 47% lower than a year earlier.
Despite the average mortgage rate repaid by new borrowers rising by 22 basis points to 6.10% in August from 5.88% a year earlier- notwithstanding a 75 basis points Bank rate cut, the rate paid by all borrowers dropped to 5.83% in the same period from 5.91 a year ago.

According to HBOS lower interest rates will relieve the pressure from borrowers.

Lending Market Remains Crimped

The London interbank rate, or Libor, for three month dollar loans rose the most in a year to 4.75% as banks continued to hoard cash despite the wave of rate cuts by European central banks. The spread between the overnight and three month rate also rose to record 348 basis points.

The six central banks including the BoE and ECB lowered rate in coordination and added liquidity in the banking system this week. However, the confidence between banks remains low.

The banks are unwilling to extend longer term loans to each other as they worry that the counter party risks outweigh the returns.

Gainers & Losers

HBOS Plc led advancers in the FTSE 100 index shares with a rise of 31.20% followed by increases in Cairn Energy of 18.22%, in Eurasian Natural of 15.78%, in Antofagasta of 10.12%, and Wood Group of 10.11%.

Commodity stocks also gained. Tullow Oil gained 8.70%, Anglo America soared 8.03% and Xstrata of 7.94%.

Barclays led decliners in the FTSE 100 index shares with a fall of 13.12% followed by losses in National Grid of 8.27%, in United Utilities of 7.53%, in International Power Plc of 6.91%, and Unilever of 6.87%.