A string of profit warnings from safe-haven British companies sparked fears yesterday that the deadly tentacles of the sub-prime crisis were starting to spread, The Times reports.
A cut in interest rates by the Bank of England to 5.25% failed to overcome investor gloom as a volley of surprise profit and sales warnings from bellwether British companies, such as GlaxoSmithKline, Yell and BT, fuelled fears of a deepening economic crisis. One-off factors as well as a general souring of investor sentiment led to a sell-off across the board.
Jeremy Tigue, the head of global equities for F&C and manager of the Foreign & Colonial Investment Trust, said: “There is real concern that the problems are starting to move from the financial sector to the whole market and that there's nowhere to hide.
“There seems to be a race between the effects of the credit crunch and central banks who are cutting interest rates. People think that the credit crunch is going to win and that interest rates are not going to come down quickly enough. People are nervous and it is going to stay like this.”
THE GOVERNMENT MAY yet avoid nationalising Northern Rock but the stricken bank officially became a public sector company yesterday, breaking one of the Treasury's key rules on borrowing in the process, according to The Independent.
The Office for National Statistics announced the level of support and control the Government has over the bank means it must be treated in the same way as a nationalised company. As a result, its balance sheet must be considered part of the public finances.
The ONS said the Bank of England could control Northern Rock's corporate policy because of covenants on the loans it has made to the ailing lender. The central bank's powers include deciding on corporate restructuring, dividend payments and acquisitions or disposals, the ONS said.
CREDIT RATINGS AGENCY Standard & Poor's is to overhaul the way it rates bonds and other debt products in direct response to some of the failings that emerged as a result of the US sub-prime mortgage crisis, The Telegraph reports.
S&P is to implement 27 separate measures to change the way it works, among serious questions over the independence of the ratings issued by it and the other major houses.
The report, which comes after an internal review, is in response to criticism that rating firms grew too close to underwriters of bonds, and suggestions they gave high ratings to mortgage-backed securities which were in part responsible for the credit crisis.
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