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US bailout agreement reaction

A tentative agreement has been reached in the US over the government’s proposed $700bn lifeline, which could force the financial services sector to cover any losses on the rescue plan.

Congressional approval on the plan is expected as early a today, after a weekend of negotiations.

Hargreaves Lansdown investment manager Ben Yearsley describes the bailout as “broadly positive”.

He says: “If the deal doesn’t go through there’s going to be carnage. Depending on the minute details it should help free up liquidity and free up the sector to then have a functioning credit system.

“We’ve effectively done the same thing in the UK with the rescue of Bradford & Bingley and Northern Rock. But this is not a blank check, banks are going to have to pay for it.”

Facts & Figures Financial Planners managing director Simon Webster says the alternative to the bailout is the risk of “financial meltdown and the collapse of Western economies”.

He says: “People in the UK do not fully understand just how serious it is in the States. All economic markets need confidence and stability and the only way that will return is if a confidence-boosting move is made by the US government.”

Webster adds that public exposure will not be as drastic as many reports are making it out to be.

He says: “The only public exposure will be if the government has to foreclose on loans and gets back less money on them. But if the government does this right and holds onto these properties for five years or so, while renting them out, the losses could be minimalised. This certainly won’t cause the losses that are being bandied about.”

Informed Choice managing director Martin Bamford says the agreement hasn’t as yet had a stabilising effect on the UK markets.

He says: “The market has dropped this morning and there’s still a degree of nervousness. Markets are reacting cautiously as they should do.”

Bamford says it’s essential for the financial services sector to be forced to cover any losses on the Government bailout.

He says: “If capitalism is to work properly that has to be the case. It is wrong for the management of banks and big financial institutions to benefit when times are good but for the taxpayer to suffer when times turn bad. I hope the same situation will occur in the UK.”

Bamford warns that there could be other UK lenders on the brink of failure.

He says: “All it takes to cause a run on a bank is a degree of uncertainty.”


The Mott juste

I have rarely seen markets like this, the mood can change from one minute to the next. Given the current environment, I will revisit a fund I covered only recently – PSigma income. I want to use it to reinforce the views I expressed last week – that interest rates must come down.

Last convert to fall

Bradford & Bingley was part-nationalised this week after the Government and the FSA decided that it could not fund itself as a bank.

The Merchants Trust PLC – April 2017

Welcome to the latest update for The Merchants Trust PLC from the Trust’s portfolio manager, Simon Gergel. Portfolio Review The Merchants Trust reported results this month and the directors were pleased to announce a 35th consecutive year of dividend growth (subject to shareholder approval at the AGM). The Company is proud to be highlighted as […]


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