Fears over Northern Rock's liabilities in the American market have helped halve the shares this year
Shares in Northern Rock fell this morning after the regional lender revealed a £275 million exposure to the US debt markets.
Last night in response to investor inquiries the bank revealed it has invested £200 million in US collateralised debt obligations (CDOs) and a further £75 million in US home equity mortgage-backed securities.
In reaction Panmure Gordon, the broker, said it would continue to put its forecast and price target for the group under review.
"Why should a UK mortgage bank have any exposure at all to US mortgage-backed securities and CDOs?" it said in a note.
"This news adds to our perception of downside earnings risk," it added.
Shares in Northern Rock fell 169p, or 2.2 per cent, to 700p in morning deals. Since a profit warning in early June, the stock has lost more than a third of its value. The shares are down by nearly a half since their peak this year in February.
Hundreds of billions of dollars of sub-prime mortgages are at risk of being written off amid a crisis in the US sub-prime mortgage market. Much of that debt was repackaged as CDOs and mortgage-backed securities.
Northern Rock described its total investment in these asset classes as “minimal, representing 0.24 per cent of reported total assets of £113 billion at June 30, 2007.”
The securities have a duration of less than two years and no exposure to 2006 or 2007 lending, it added.
However, the announcement came amid mounting concerns that lenders will face problems making new loans because of higher borrowing costs on their own financing.
Northern Rock has been singled out because it gets about 75 per cent of its funds from other financial institutions, which have tightened their lending terms amid fears of a global credit crunch.
Northern Rock added that it completed the sale of about £465 million of Commercial Secured loans to Lehman Commercial Mortgage Conduit Limited (LCMCL), a wholly-owned subsidiary of Lehman Brothers.
The deal “followed the sale on 22 June of £838 million of Commercial Secured Loans to LCMCL and was the next phase of that transaction,” it said in a statement.
Panmure said the question was "what gains, if any, were recorded on the sale".
The broader blue-chip market also moved into the red, with the FTSE 100 reversing opening gains as a further flight to quality in the US overnight reignited concerns surrounding the possible fallout from the US mortgage market.
In mid-morning deals the FTSE 100 was down 38.3 points lower at 6,039.4, having quickly pulled back from an opening high of 6,118.9 and after closing Monday’s session 14 points higher.
0 comments:
Post a Comment