Fears of a global slowdown triggered by US housing market problems wiped 5.2 trillion US dollars off global stock markets in January, analysts estimate. According to ratings firm Standard and Poor's, 50 out of 52 share indexes around the world ended the month lower. (5.2 trillion is equivalent to two GDP of France).
But politicians also are concerned about the spiraling US financial problems. On Sunday, finance ministers from the G7 group of industrialized nations said losses from the US mortgage crisis could reach 400 billion US dollars. The US Federal Reserve has previously estimated losses of up to 150 billion after a surge in the number defaults on sub-prime loans. Sub-prime loans are made to people with poor or non-existent credit histories. Over the next two weeks banks are expected to report further write-offs of bad debt as the banking reporting season kicks off. One of the major problems facing policymakers and analysts is that new losses linked to sub-prime problems keep emerging. "The only thing we know is that it is big and we keep on discovering new dimensions," Italy's central bank governor Mario Draghi said after the G7 meeting. "House prices keep falling (in the US) and subprime and mortgage sectors stay vulnerable." Uncertainty over the financial repercussions of the sub-prime crisis was reflected in stock market falls in January, according to Standard and Poor's figures. Just under half of the major markets lost more than 10% of their value. In London, the main FTSE 100 index lost almost 9% in January and 16.5% in the past three months. In Paris, the stock market fell 12.3% in January and was down 15.3% in the three months from November. The falls wiped out all of the index's gains for the previous 12 months. Emerging markets were hit even harder. China lost 21.4% in January, while Russia and India both fell 16%. Turkey lost 22.7%. In related news Standard & Poor's Ratings Services said it has begun implementing actions to strengthen its ratings operations, including enhancing governance policies and analytics processes, transparency and educating the public. The credit rating agency said it will establish an office of the Ombudsman to address concerns related to potential conflicts of interest across S&P's businesses that issuers, investors, employees and other market participants may raise. S&P said it will also periodically rotate lead analysts and review ratings of analysts that leave the company to work for an issuer. S&P will also engage an external firm to conduct independent reviews of its compliance and governance processes. America's Securities and Exchange Commission is investigating whether credit ratings agencies were unduly influenced by firms that marketed and trade sub-prime securities. The European Commission has launched a similar probe to assess corporate governance within the agencies, and to assess their management of conflicts. The moves outlined by S&P, however, are seen as designed to head-off most changes that might stem from these regulatory reviews.
Top CommentsDisclaimer & comment rules
Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!