US Leading Bank spooks Wall Street with housing crisis mortgage losses estimate

Traders in New York were spooked by news that the housing crisis could cost a major bank $US1.5b in mortgage loses. (File photo) (Reuters: Chip East)
Growing worries about bank mortgage troubles from the US housing crisis sent Wall Street shares tumbling on Friday, with investors still skittish at the end of a volatile week.

The Dow Jones Industrial Average sank 234.85 points (1.8 per cent) to 13,031.44 at the closing bell.

The Nasdaq composite, hit hard on Thursday, extended its losses with a slide of 68.06 points (2.5 per cent) to 2,627.94 and the broad-market Standard & Poor’s 500 index slumped 22.05 points (1.5 per cent) to a preliminary close of 1,452.72.

Sentiment took a hit after Wachovia, one of the leading US banks, said that its losses from risky real-estate mortgage investments may top $US1.5 billion ($1.64 billion).

“The market is getting whipsawed by reports - some true and some untrue - of write-downs at major financial institutions,” said Patrick O’Hare at Briefing.com.

Mr O’Hare said that in addition to the news from Wachovia, unconfirmed reports that British bank Barclays was set to take a $US10 billion write-down also unsettled the market, even though Barclays issued a denial.
Weak British finish

Earlier Britain’s leading shares lost 1.2 per cent as an intensifying credit market crisis threatened to further batter financials, while weak metal prices offset the impact of bid talk to take most mining stocks lower.

The FTSE 100 index ended 77 points lower at 6,304.9 points, its weakest finish in seven weeks, taking its losses for the past five sessions to 3.5 per cent.

Banks were the heaviest weighted decliners, taking around 18 points off the index, with HSBC falling 1.4 per rcent and Royal Bank of Scotland 3 per cent.

Barclays at one stage fell 9 per cent and its stock was briefly suspended, in relation to the write-down rumours.

Insurer Friends Provident tumbled 7.2 per cent on a price target cut from UBS and fresh worries over its future strategy after its merger with rival Resolution fell through.

Analysts said that there was too much weighing on the FTSE to allow much of a recovery any time soon.

“Investors are not giving anybody the benefit of the doubt here as far as the banks go,” Brewin Dolphin strategist Mike Lenhoff said.

“People are concerned that there’s more in the pipeline, and know that the risk attached to the earnings outlook has increased significantly.”

- AFP/Reuters

Immigration and rent rises may cause mortgage interest rate hike

Posted October 22, 2007 07:00:00
Updated October 22, 2007 07:09:00
In demand: Immigration is fueling rent rises which could force interest rates up (ABC News: Penny McLintock)

 Rising rents and increased immigration are forecast to put more pressure on inflation and possibly force the official interest rate higher next year.

While housing construction remains depressed, a new report from forecasting firm BIS Shrapnel predicts that the number of people migrating to Australia will reach record levels this financial year.

The firm says immigration will boost the underlying requirement for new homes to 182,000 annually, much higher than the 151,000 which were actually started last financial year.

The report says there is unlikely to be any pick-up in construction this year.

BIS Shrapnel senior manager Jason Anderson says there is already very strong demand for rental accommodation and the housing deficiency will see rents continue to accelerate.

“Because the rental component of the CPI is about 5 per cent, that could actually push up the inflation rate by as much as 0.2 percentage points,” he said.

Mr Anderson says that could make it a factor in another official interest rate increase next year.
Source: ABC

Peter Costello warns the banks against using the US credit slump to raise interest rates

Federal Treasurer Peter Costello has warned the banks not to use the United States mortgage crisis as an excuse to lift loan rates.

The head of the National Australia Bank, John Stewart, says the US subprime crisis is putting pressure on the banking system.

Mr Stewart says as a result, the banks are likely to lift their loan rates after the election, regardless of whether the Reserve Bank increases the official cash rate next month.

Mr Costello has told ABC television’s 7.30 Report that will not be happening while he is Treasurer.

“There are no grounds whatsoever for any of the banks to use the US subprime fallout as a reason to put up home mortgages,” he said.

“There are no grounds and this Government has made it entirely clear to the banks that they should not be doing it.”
Source: ABC