The heart of the global economy headed slightly closer to total seizure as the credit crunch just severely hardened in the UK. Citibank and Morgan Stanley two banks who made credit crack dealer like profits on the back of UK subprime borrowers during the credit bubble, now feel the after effects setting in and are bailing out.
Morgan Stanley announced in February that it would shut down its UK residential mortgage arm Advantage on June 16.
Advantage was one of a string of specialist units, often backed by investment banks, which piled into the UK non-confirming mortgage market over the past few years on the back of a booming securitization market, but have since been forced to close down.
With each bank to join the exodus the UK is left with one fewer lender and by the time Citi joined the flight from London one fewer has approached one too few.
Joining other investment banks, the increasingly beleaguered American bank has closed Future Mortgages, its mortgage operation and CitiFinancial, its unsecured loans business. The move will lead to the loss of 700 jobs as 49 CitiFinancial branches, employing 300 people, and its Doxford call centre, employing 400, will be closed.
That is bad news for those losing their jobs, but eventually the true impact may be felt by one and all.
The news has been met with dismay by advisers who claim it is now virtually impossible to find a deal for a client with a less then perfect credit history.
Chris Mottola, mortgage consultant for Southampton-based Choice Financial Solutions, said credit conditions had become so stringent many clients were now simply stranded on high-interest deals.
He said: “It is just impossible to find anyone wishing to lend. The ones officially left in the market are actively seeking to put off any potential customers. To be honest, it can be a bit of a nightmare.”
No one lending, no one borrowing, no credit flow, heart attack, that’s another word for Nightmare.