Banking Crisis

BANKING CRISIS CHILLS ARCTIC SETTLERS

LA CRISE BANCAIRE REFROIDIT LES COLONS

ARCTIQUES .

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Further  evidence that the West?s debt based economy is heading towards the rocks and with it a new range of threats and political opportunities comes from the unlikely setting of inside the Arctic Circle.

On Baffin Island in the Arctic Circle, Baffinland Iron Mines Corp. almost missed its window to ship provisions to workers before winter arrives.

 The delay came not from the weather, but from a sudden freeze in the market for short-term debt 2,000 miles south in Toronto.

Baffinland ran short of funds to pay for food, fuel and drilling equipment after investing in commercial paper that borrowers couldn't repay.

Without the money, the company had to arrange an emergency line of credit to keep 200 people alive before shipping lanes start to freeze over.

The Canadian cash crunch that started with defaults on subprime mortgages in Southern California and Florida has hurt more than 25 companies that invested in commercial paper, including Sun-Times Media Group Inc. and Canada Post, the nation's mail service. Baffinland has 95 percent of its cash in Canadian commercial paper, debt that is due in 364 days or less.

Investors fled Canada's asset-backed commercial paper, paralyzing the C$40 billion market for debt that carried the highest credit ratings, after losses from home loans to people with poor credit histories roiled global credit markets.

That left Baffinland and other investors in the lurch because 17 funds run by finance companies including Toronto- based Coventree Inc., Newshore Financial Corp. and Quanto Financial Corp., couldn't raise money to pay back lenders.

Market in IOUs

Coventree managed C$16 billion in commercial paper funds with the highest ratings. About 4 % of Coventree's commercial paper was backed by subprime mortgages.

No commercial paper borrower had failed to pay on time in two decades and Toronto-based DBRS gave the securities its top rating of R-1. The funds also had backup lines of credit from banks should a market disruption shut down the market.

Canada's asset-backed commercial paper market doubled to C$120 billion since 2000, according to Moody's Investors Service in New York. Buyers snapped up the IOUs as government debt sales fell 60 percent to C$23.5 billion in the past decade after nine straight surpluses, according to the March budget.

Investors began demanding yields of about 6.03 percent to own Coventree's commercial paper. On Aug. 13 the company said it couldn't find enough buyers to refinance C$950 million of short- term debt and its banks refused to provide emergency funds. Company spokesman Craig Armitage declined to comment.

``Anytime there's a reliance on short-term funding without specific alternative plans for liquidity, that's going to be suspect,'' said John Hollyer, principal at Valley Forge, Pennsylvania-based Vanguard Group Inc., which has $170 billion in money market funds under management. ``That's the overriding lesson of what happened here.''

£4.4m lifeline

Back in the UK, it has emerged that Britain's deposit protection scheme currently holds funds of just £4.4m. The Financial Services Compensation Scheme took control of a £9m fund from its predecessor scheme but that has been gradually whittled down through payouts to depositers with collapsed credit unions.

The scheme's meagre resources are in stark contrast to America's Federal Deposit Insurance Corporation which has a $49bn (£24bn) fund and the power to take control of the deposits of failing banks.

A spokesman for the FSCS said the scheme could call on up to £139m ? chiefly by plundering funds set aside to cover compensation claims from other parts of the financial services industry.

However, in the event of a major failure it would have no choice but to impose a huge levy on the rest of the industry, which some observers warn could severely dent banking profits.

 http://www.bnp.org.uk/news_detail.php?newsId=1738

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end in sight for consumer boom

24th September 2007

News article filed by BNP news team

Britain’s consumer boom which has given a false sense of economic prosperity and led to the “feel good” factor is continuing showing signs of coming to an end. It is difficult to say whether it will be a cushioned blow or a cataclysmic crash but the country’s largest lender is curbing credit limits suggesting that the credit crunch is not going away soon.

Barclaycard is Britain's biggest credit card issuer and has been reviewing the limits for many of its customers. Half a million credit card customers have had their spending limits cut many more applications for new cards have been rejected.

The move is part of a general squeeze on the availability of high street credit that has been under way since the start of the year. However, commentators believe the Northern Rock crisis and the turmoil in the global credit markets will accelerate the trend.

Review

A spokesman for Barclays said: "We have been going through a review since 2006 and lowered credit limits for 500,000 cardholders where customers are over their limits or where they have become over extended."

About half of all applications for new Barclaycards are now rejected.

Barclaycard profits fell by 17 per cent in the first half of the year as bad debts soared to £1.5 billion.

Borrowers with poor credit histories may find it particularly hard to take out new cards and loans as banks shy away from risky borrowers.

The tightening is bad news for the high street, which was already braced for a difficult Christmas as consumers cut debt and build up their savings.

Consumer credit now stands at an all time high with total UK personal debt (as at the end of July 2007) standing at £1,355bn a figure which exceeds the total value of the UK economy.

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http://www.bnp.org.uk/news_detail.php?newsId=1733