The problems caused by the US sub-prime crisis have been wide and intense. The US housing market continues to fall, the credit crunch followed and is still causing grief worldwide, and economies around the world are taking flight. It might not get better just yet.
In fact, a leading management consultancy has forecast that the sub-prime fallout could get a lot worse in 2008 before it gets better. The warning comes from Oliver Wyman Financial Services, who say that another $300bn (£153bn) of losses could come from sub-prime losses, on top of the $100bn already reported.
The credit crunch caused the worldwide financial services industry to lose market value in 2007 for the time in five years. Investors in the industry lost a total of one trillion dollars in the year, and Wyman suggested that earnings and valuations will suffer again in 2007. The glimmer of hope is that firms that adapt and survive will come out the other side ‘fitter and stronger’.
Four new areas are identified as likely to provide major risks for financial industry companies.
Firstly, there are likely corrections in the European property markets, with the UK and Spain heading the list.
Secondly, there could be a major drop in Asian markets, particularly China and India.
A third area of concern is the imbalance in global commodity prices are increases last year in oil, gold, coal and agriculture.
Finally, a further reduction in the value of the dollar would devalue investors’ holdings and further intervention by central banks could slow economic growth.
Head of Oliver Wyman Financial Services, Scott McDonald, said: “Recent events have exposed failings in certain areas of risk and liquidity management, as well as other excesses that require correction. To thrive in the current challenging environment, chief executives will need a much tighter grasp of potential exposures and contingency plans for worsening markets.
Tags: banks, credit <BR/>
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Fri, Feb 1, 2008
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