News

Lehman collapse prompts week of financial chaos

News

Chris Bourke

20 September 2008

LIBOR soars, shares take a beating and the outlook darkens

Marcus: “We are in a worse place than a week ago”

Chris Bourke

The future of property finance is even less certain after a week of panic on global stock markets.

“What this is going to do, without any question at all, is further limit the availability of credit,” said Ian Marcus, head of real estate at Credit Suisse and former president of the British Property Federation.

LIBOR (the rate at which banks lend to each other) soared this week as banks scrambled for liquidity. Its overnight rate in US dollars almost doubled, climbing 3.33 points to 6.44% on Wednesday, the biggest jump in seven years.

“The interbank market is fundamentally illiquid and banks aren’t lending to each other for more than one month,” said John Edwards at property finance broker JC Rathbone.

Property shares also took a hammering. The FTSE 350 real estate index fell by 9% in the four days following the collapse of Lehman Brothers, which was the prime catalyst for a week of financial mayhem.

Songbird Estates, which owns 60.8% of Canary Wharf, took a 13% hit despite telling investors that it was insured should Lehman default on rent at its25 Bank Street headquarters.

Great Portland Estates’ shares fell 12% in price Savills, Brixton and Land Securities all lost 11% while British Land and SEGRO were down 8% in value.

However, the major concern remains the longer-term outlook for banks with high real estate exposure, as the system continues to unravel and shrink.

Marcus said: “We are in a worse place than a week ago. If you’ve got half a dozen banks with new chief executives, what does any new CEO do when he comes in? He clears the decks.”

There were major concerns this week over HBOS, whose share price collapsed on fears about its real estate banking model, before it agreed to be taken over by Lloyds TSB.

According to HBOS’s last results, 40% of its £117bn corporate loan book – or £47bn – is allocated to real estate. But it has also invested heavily in equity stakes in joint ventures with some of the UK’s most well-known property players.

Marcus said: “What is Lloyds going to do with those jvs? What happens to its ability to refinance deals? Maybe it’s an opportunity for some – maybe it’s more pain for others.”

LIBOR soars, shares take a beating and the outlook darkens Marcus: “We are in a worse place than a week ago”Chris BourkeThe future of property finance is even less certain after a week of panic on global stock markets.”What this is going to do, without any question at all, is further limit the availability of credit,” said Ian Marcus, head of real estate at Credit Suisse and former president of the British Property Federation.LIBOR (the rate at which banks lend to each other) soared this week as banks scrambled for liquidity. Its overnight rate in US dollars almost doubled, climbing 3.33 points to 6.44% on Wednesday, the biggest jump in seven years.”The interbank market is fundamentally illiquid and banks aren’t lending to each other for more than one month,” said John Edwards at property finance broker JC Rathbone.Property shares also took a hammering. The FTSE 350 real estate index fell by 9% in the four days following the collapse of Lehman Brothers, which was the prime catalyst for a week of financial mayhem.Songbird Estates, which owns 60.8% of Canary Wharf, took a 13% hit despite telling investors that it was insured should Lehman default on rent at its25 Bank Street headquarters.Great Portland Estates’ shares fell 12% in price Savills, Brixton and Land Securities all lost 11% while British Land and SEGRO were down 8% in value.However, the major concern remains the longer-term outlook for banks with high real estate exposure, as the system continues to unravel and shrink. Marcus said: “We are in a worse place than a week ago. If you’ve got half a dozen banks with new chief executives, what does any new CEO do when he comes in? He clears the decks.”There were major concerns this week over HBOS, whose share price collapsed on fears about its real estate banking model, before it agreed to be taken over by Lloyds TSB.According to HBOS’s last results, 40% of its £117bn corporate loan book – or £47bn – is allocated to real estate. But it has also invested heavily in equity stakes in joint ventures with some of the UK’s most well-known property players.Marcus said: “What is Lloyds going to do with those jvs? What happens to its ability to refinance deals? Maybe it’s an opportunity for some – maybe it’s more pain for others.”