Thursday, 01 July 2010 11:23

Who says only Americans are trying to delever? Quips from the UK Financial (In)Stability Report

Who says only Americans are trying to delever?

Even with exposure to foreign events and insolvent counterparties at the top of every financial institution’s worry list for the rest of 2010, the microeconomic picture for debtors in the UK remains mediocre.  Americans were not the only ransacked with debt during the past decade, as Brits watched their securitized debt levels rise to incredible rates.  The Bank of England makes a point to state that without record low interest rates, defaults would be another issue for banks to look out for (interpreted: the Democratic People’s Republic of Korea will win the World Cup before the central bankers at the BoE even consider raising interest rates).  Soon after, they state that it would be easier to raise rates in times of robust growth than the uncertainty of current conditions, which is absolutely novel.

Domestic Credit:

  • A majority of UK households have a large amount of equity in their home value
  • Unsecured mortgages made up 2/3 of write offs since 2007, and even as they have stagnated, credit card write offs have increased to record highs
  • The beginnings of a potential CRE resurgence in the UK have been limited to prime properties, with higher yield projects being shunned
  • Even as prices are rising, they are still a third below 2007 peaks (and still probably overpriced if it is anything like the US CRE market)
  • If tighter credit conditions prevent voluntary restructuring, CRE prices will fall further on corporate liquidations and forced foreclosures


Figure 1: UK Real Estate Remains a Large Domestic Risk


Figure 2: Implied Volatilities Still Show Room for a more Serious Correction

Relevant free reading for those who relish freebies, sourced from the BoomBustBlog (was coming, now arrived) Pan-European (soon to be global) Sovereign (soon to be private) Debt Crisis:

  1. Osborne Seems to Have Read the BoomBustBlog UK Finances Analysis, His U.K. Deficit Cuts May Rattle Coalition
  2. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

  3. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

  1. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? – illustrates the potential for the domino effect

  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. – attempts to illustrate the highly interdependent weaknesses in Europe’s sovereign nations can effect even the perceived “stronger” nations.

  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries

  5. Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ!

Latest Pan-European Sovereign Risk Subscription Research – The Good Stuff!!!

Actionable Intelligence Note For All Paying Subscribers on European Bank Research

File Icon A Review of the Spanish Banks from a Sovereign Risk Perspective – retail.pdf

File Icon A Review of the Spanish Banks from a Sovereign Risk Perspective – professional

File Icon Ireland public finances projections

File Icon Spain public finances projections_033010

File Icon UK Public Finances March 2010

File Icon Italy public finances projection

File Icon Greece Public Finances Projections

File Icon Banks exposed to Central and Eastern Europe

File Icon Greek Banking Fundamental Tear Sheet

File Icon Italian Banking Macro-Fundamental Discussion Note
File Icon Spanish Banking Macro Discussion Note


Last modified on Friday, 02 July 2010 09:21
Login to post comments