'Run on UK' sees foreign investors pull $1 trillion out of the City

Discussion in 'Wall St. News' started by ASusilovic, May 26, 2009.

  1. Banking crisis undermines Britain's reputation as a safe place to hold funds

    A silent $1 trillion "Run on Britain" by foreign investors was revealed yesterday in the latest statistical releases from the Bank of England. The external liabilities of banks operating in the UK – that is monies held in the UK on behalf of foreign investors – fell by $1 trillion (£700bn) between the spring and the end of 2008, representing a huge loss of funds and of confidence in the City of London.

    Some $597.5bn was lost to the banks in the last quarter of last year alone, after a modest positive inflow in the summer, but a massive $682.5bn haemorrhaged in the second quarter of 2008 – a record. About 15 per cent of the monies held by foreigners in the UK were withdrawn over the period, leaving about $6 trillion. This is by far the largest withdrawal of foreign funds from the UK in recent decades – about 10 times what might flow out during a "normal" quarter.

    The revelation will fuel fears that the UK's reputation as a safe place to hold funds is being fatally comp-romised by the acute crisis in the banking system and a general trend to financial protectionism internat- ionally. This week, Lloyds became the latest bank to approach the Government for more assistance. A deal was agreed last night for the Government to insure about £260bn of assets in return for a stake of up to 75 per cent in the bank. The slide in sterling – it has shed a quarter of its value since mid-2007 – has been both cause and effect of the run on London, seemingly becoming a self-fulfilling phenomenon. The danger is that the heavy depreciation of the pound could become a rout if confidence completely evaporates.

    Colin Ellis, an economist at Daiwa Securities, commented: "The outflow of overseas banks' UK holdings is not surprising – indeed foreign investors in general will still be smarting from the sharp fall in the exchange rate last year, as many UK liabilities are priced in sterling terms. That raises the question of what could possibly tempt overseas investors to return to the UK. Further heavy outflows of funds are probably a given."


    The U.K. is finished.
  2. Are the US and UK Too Spoiled to Accept Austerity?

    We all know the question in the headline is strictly rhetorical. If the US cannot stand to make risk capital like bondholders take a whack (heavens, no, we cannot make hapless funds take losses, better to dump it on taxpayers who have no ready way to complain), it goes without saying that we are wildly unprepared for any sort of real hardship. Yet as the experience of other financial crisis countries suggests, taking the hit from bankruptcies and resturcturings and cleaning up banking systems faster is associated with steeper initial downturns and rapid rebounds.

    And if we don't take our medicine, I fear it will be imposed on us later by events regardless.

    Gideon Rachman reminds us that a lot of countries have taken pretty serious reversals with very little whining and have come through them. The US has had three generations of improving or at least not worsening living conditions. Would we cope as well as Eastern Europe?

  3. Fantastic article. Thanks, ASusilovic.

    Gotta' love the 'silent' part, which I have no doubt about.

    The government will do everything in its power to suppress this seismic event.

    Panic must be prevented.
  4. Especially German banks wait for the next opportunity to get out of U.K. real estate market. If London is dreaming of a stabilization of CRE : dream on ! =>

    Rents Crashing in London to 1991 Prices Le Gavroche Shows Gone

    May 14 (Bloomberg) -- Anyone driving a BMW 3-series convertible in London probably knows the price has doubled since 1991. A three-bedroom home in Chelsea fetches almost three times what it cost 18 years ago. And at Le Gavroche, the two-Michelin- star menu favored by bankers since the Big Bang of the 1980s, dinner will set you back 33 percent more than you paid when Margaret Thatcher was prime minister.

    It’s another story in the City of London, where office rents in the U.K.’s main financial district are falling to 1991 levels as job losses and a mistimed building boom depress prices.

    The City already has enough empty offices to hold two- thirds of Canary Wharf, the docklands area developed 1 1/2-miles east in the 1980s to lure investment bankers. About 9 million square feet (855,000 square meters) are available in the City and that may climb to 12 million by the end of 2009, according to CB Richard Ellis Group Inc., the biggest commercial property broker. Almost 19 percent of all City offices may be vacant next year, analysts at CB Richard Ellis estimate.

    “We’re in the eye of the storm,” said Bryan Higgins, chief investment officer of Irish homebuilder Menolly Group, which bought 107 Cheapside in the City three years ago for 150 million pounds ($227 million). The building has no tenants. “Supply way exceeds demand,” he said.

  5. Ok, so when I read a quote saying "The UK is Finished"....

    What does that exactly mean? Are you trying to suggest the UK will cease to exist? Does anyone honestly believe that will happen?
  6. zdreg


    study Iceland
  7. Cable continues to strengthen ...

    pushing 1.60 vs $
    zoomed past 152 vs. yen
    up to 87.50 vs euro
  8. UK / Iceland comparison ranks about the same as comparing an elephant to a mouse.

    With a population of 320,000 one could make the argument that it can't really be thought of as a 'country'.

    That's a small city in population terms only. It's similar to comparing a small cap stock and a large cap. Which is more nimble? Who's price usually moves?

  9. The one eyed Scottish idiot will be binned within the next year and so will most of the current politicians.
    He is trying his best to tax and spend the UK into oblivion but his days are numbered.
    There is also healthy talk about positive constitutional reform. While the rest of the world heads down the socialist and protectionist pathway the UK will have a chance to head back towards capitalism.
  10. Sounds like everyone needs to max out their credit limits and short everything British.

    #10     May 26, 2009