Shares digital

Sub-prime lender Cattles (CTT) is the most exposed of the specialist financials to an expected rise in bad debts, say analysts at independent broker Numis.

The collapse of US investment bank Bear Stearns has been accompanied by a new spike in the London inter-bank offer rate (LIBOR), the wholesale cost of credit, and businesses and consumer loans tend to be priced off it, rather than base rates.

The knock-on effect of dearer credit is likely to be slowing economic growth and rising unemployment.

This new credit environment will, says Numis analyst James Hamilton, hit Cattles’ customers’ particularly hard: ‘Customers have a propensity not to pay even in good times and have a weak employment track record.’

Numis is particularly bearish about the UK’s economic outlook, predicting rising bad debts will lead to at least a 44% decline in house prices. As the UK economy moves into recession, the prospect of a severely weakening pound driving inflation may lead to ‘a nightmare scenario of rising rates into a recession.’

Shares says: Following the collapse of Bears the risks are much greater.

by: Simon Keane