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Governance

FSA reputation damaged after Northern Rock

Tuesday, 11 December 2007

Seven out of ten institutional investors in the City say they have ‘less’ or ‘absolutely no’ confidence in the Financial Services Authority (FSA) after the Northern Rock fiasco.

The results are included in the latest survey of the Cantos City Panel. Members of the panel are directly recruited from the institutional investment community and include individuals from both the buy- and sell-side of the top 100 UK equity houses as well as boutiques and hedge funds.

The 170 panellists represent institutions whose total funds under management currently total £990bn.

Institutional investors have become ever increasingly bearish on the UK’s key economic indicators. More City experts now believe house prices and consumer spending will fall according to the survey.

Increasingly pessimistic view

The results show that during the three months since the panel was launched, City fund managers and analysts have taken an increasingly pessimistic view on the UK housing market.

The survey found that 80 per cent of respondents thought the US is heading into recession in 2008.

Although confidence remained for emerging markets, there was doubt and uncertainty over prospects for the UK economy. Over 70 per cent believed the FTSE 100 will remain above 6,000 at end of 2008.

Almost half (49.4 per cent) now believe average house prices in the UK will decline significantly over the next 12 months, compared to just 14 per cent that held this view in October.

Drop in consumer spending

Prior to the expected interest rate cut announced on Thursday, the Cantos City Panel still did not think it would be enough to avoid house price decreases in 2008, as nearly nine out of ten of them (87.4 per cent) said they expected a decrease of at least 0.25 per cent by the end of the next quarter.

Consumer spending fares no better, with 64 per cent now predicting a drop in consumer spending over the next quarter up from 43 per cent in November.

Four in ten in the City said that Virgin’s preferred deal for Northern Rock did not offer the best deal for the company’s shareholders. Four in ten did believe, however, that the preferred Virgin deal for Northern Rock offered the best option for UK taxpayers.

Roddy McDougall, editor-in-chief of Cantos, said that the survey suggested that negative sentiment amongst City experts in relation to house prices and consumer spending had taken a firm grip and may continue well into 2008.

“Those already struggling with recent interest rate rises, especially first-time buyers may have breathed a collective sigh of relief at the Bank of England’s cut last week, but it may need further moves to overturn the gloomy outlook on the housing market held by the panel,” McDougall added.

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