Financial stocks to be challenged by Indymac collapse

Financial stocks are likely to face challenging trading over Monday and Tuesday after the collapse of Indymac in the USA - one of the largest failures in US banking history.

Fears relating to the exposure of companies to sub-prime debt are likely to be heightened, in a trading environment where concerns are already piqued over the future of Freddie Mac and Fannie Mae.

Monday will likely see UK financials hit as investors shy from potential risk exposure, closely followed by a strong retreat on the Dow Jones from companies with significant mortgage-backed securities.

RBS, Alliance & Leicester and Bradford and Bingley on the London Stock Exchange are especially susceptible to investor panic.

Meanwhile on the New York Stock Exchange companies such as MBIA, Ambac, and Washington Mutual especially, could see falls in value of over 20%, dragging down stocks across the banking and investment banking sectors.

However, both the FTSE 100 and Dow Jones indices overall will remain strained by a raft of economic data to be released in the US between Tuesday and Thursday.

These are likely to show consumer spending only slightly boosted by the US governments tax credits, with all other indicators likely to suggest continued threat of recession.

UPDATE: July 14th - Not long after writing this, the US government announced a rescue package for Freddie Mac and Fannie Mae. Coupled with Santander’s announced take-over of Alliance and Leicester this morning has left trading in an optimistic mood for Monday.

However, the challenge comes in the raft of US economic data to be released this week, which could easily return market sentiment to the bears over Tuesday and Wednesday.

Discuss this in the Finance Markets forums

Story link: Financial stocks to be challenged by Indymac collapse