Cobalt news
Looking forward to a return to normality
Timothy Rowe
22/10/2008
Over the last month the financial landscape has changed beyond all recognition. The drama that we have all seen unfold does not need any embellishment to portray the sense of near armageddon that has been felt, the chronology of events is all that is needed.
The beginning of the recent run of events can be called with the US‘nationalisation’ of the two US mortgage behemoths, Fannie Mae and Freddie Mac, on 7 September, by Hank Paulson, the US Treasury Secretary. The $200m cash injection was not enough to stem the level of mistrust between the banking community and a week later Lehman Brothers filed for Chapter 11 bankruptcy protection, just a matter of days after the US Federal government took a 79.9% stake in the insurance giant AIG. This was merely a precursor to the US government’s plan to purchase $700m of distressed assets from the banking sector in order for them to begin to function and cooperate again. The UK government then began to take the agenda to the next stage with their part nationalisation plan to resuscitate a level of confidence in the UK banking system. This has been done through taking preference stakes in the institutions, insulating their exposures and protecting depositors. The intention is clearly defined to get the banking system moving again and is increasingly being adopted by other states around the world. UK Prime Minister Gordon Brown may have got the ball rolling in many ways in this initiative, but other governments have also signed up to this method. If we ever needed an example of globalisation this was it.
Of course there are many other points in the chronology of recent events, such as Iceland’s banking meltdown, but suffice it to say, the world has changed and has been rebased. One banker the other day, in reflective mode, reminded me that we should occasionally stop and consider what we are currently experiencing as there are very valuable lessons to be learned in working through this international economic readjustment. Those markets which have been considered insulated from the current crisis, notably Asia and the Middle East are certainly seeing fallout both in terms of their banking and the real economy. There is still however more activity, confidence and structural demand in terms of infrastructure and real estate development projects to keep a level of confidence and growth plans on track. This is something we are seeing with our recruitment activity and demand levels for property professionals.
With the international authorities and governments working hard to bring liquidity back into banking markets and to kick start those economies that are looking at risk of or tantalisingly close to recession, in addition to adding stimulus through interest rates, there is some more optimism on the horizon. Many well regarded investors are seeing value in the equity markets and we are certainly seeing and hearing of more activity in the direct real estate investment markets, albeit a further tightening in the development market is being seen. We have lived through an extraordinary set of circumstances and the international community have come together to preserve our systems and to enable us to function again. Now it is time for the market to begin to operate again and to establish where the value is and how it can be pursued.