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January 9, 2008

Credit crunch forecast to worsen

by Richard Kilner

Story link: Credit crunch forecast to worsen

Speculation is mounting that the turbulence in the credit markets will continue to worsen before getting better.

Caledonia Investments’ chief executive, Tim Ingram, has said that banks could face a brace of serious problems during the course of the year.

The full scale of the banking problem caused by the credit crunch has yet to be seen, Ingram has said, adding that he believed the short term situation would continue its decline.

Although banks have issued statements regarding their subprime-related losses, auditors could release different figures, Ingram said.

Auditors will be extremely cautious, he said, as they will not wish to risk having to make new announcements about provisions a few months later.

Ingram has also said that regulatory bodies will want financial institutions to have far more conservative capital ratios, due to the rising operational risks involved.

The pair of problems will remove a lot of cash from the market, he said, as the auditor and regulatory actions will create a number of rights issues.

The UK economic growth for this year has been predicted as 2% by the CBI. However, the Alliance Trust has forecast a far more austere year, with growth projected to decrease by half to 1-1.5%.

 

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