Signs emerged for the first time yesterday that the credit crunch which began in American sub-prime mortgages is hitting home among UK domestic banks, The Independent reports.
HBOS, the parent company of Halifax and Bank of Scotland, said it would itself repay maturing debts for its Grampian commercial paper unit because the cost of borrowing in the short-term market was too high.
The asset-backed commercial paper market has ground to a halt as investors have steered clear of short-term loans supported by mortgages and other financial assets.
HBOS said less than 1% of Grampian's assets were in "old vintage" sub-prime, and that it had no exposure to more risky sub-prime loans made in the past two years.
The Bank of England, meanwhile, revealed that it lent £314m to an unnamed financial institution at the penalty rate of one percentage point above the base rate.
The cash injection pales in comparison to the more than $200bn central banks pumped into the banking system earlier this month but reinforced the panic running through the credit markets.
SPECULATION GREW ON Wall Street last night that the Federal Reserve is bracing itself for a possible cut in interest rates after the central bank's chairman made it clear he was willing to use "all available tools" to calm markets, according to The Guardian.
With investors still piling their money into the safe haven of bonds, Ben Bernanke used a meeting with US treasury secretary Hank Paulson and Senate banking committee chairman Christopher Dodd to give fresh reassurance to jittery markets.
Mr Dodd, a Democrat presidential candidate for 2008, left the talks pleased that Mr Bernanke was prepared to respond to the turmoil of the past week, which has seen wild gyrations in share prices, a flight to quality in the bond market and the freezing up of credit markets.
BHP BILLITON TODAY said there was no sign of an end to the global commodity boom despite escalating fears over the credit crunch in the US as it reported record full-year profits of nearly $14bn (£6.7bn), The Times reports.
The world’s biggest mining group insisted that while the US economy slowing there was no sign of a let up in demand from China and India. It added that growth in the Chinese economy may even accelerate over the rest of the year
Chip Goodyear, outgoing chief executive, said: “We have taken the opportunity to speak to our customers and I would say the outcome is as expected.
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