When New York sneezes, London can catch a cold.
Tremors of the sub-prime crisis triggered by home loans that went wrong in the United States as house prices crashed took away 1,300 jobs on Thursday in the British capital’s "City" – and by all accounts there were more wickets to fall among high-flying financial industry executives and workers.
UBS and Merrill Lynch axed 900 and 400 jobs respectively, while there were expectations that Citigroup – which has a large number of Indians on its rolls – would slash 1,000 London jobs. In New York, Citi announced 9,000 job cuts worldwide as it reported a $5.11 billion first quarter loss on Friday, in addition to 4,200 announced last quarter.
Banks such as HSBC and Morgan Stanley have been axing staff as demand for complex debt and mortgage products has dried up in the wake of the global squeeze on credit. So far, at least 2,500 jobs have gone across London, but many in the City are bracing themselves for much deeper cuts.
Rub-off effects could be felt in other industries as well, as a bad economy can trigger all-round tensions, cutting into retail budgets. Though the extent may be less, UK also has its own share of mortgage failures.
The scenario is bleak. Almost 600,000 people will be unable to refinance their debts this year after finding their usual lines of credit cut off, forcing them to go bust or sign expensive "bankruptcy-lite" agreements. About one million Britons are struggling with £25 billion of unsecured borrowings that they cannot repay – "problem debt" averaging £25,000 each - according to a report by TDX Group, which provides detailed debt-collection information to banks.
Thousands of Indian-origin workers employed on tills and floors by high street stores and chains such as Sainsburys and Asda, see a grey
Said Krishna Patel, who works at a retail food outlet, "I took out a loan for the extension of our family home. If I lose my job, my husband cannot pay the interest on the additional loan."
Talk of a downturn is chiming as loud as Big Ben JP Morgan, which rushed to the rescue of maimed Bear Stearns on Wall Street, estimates 40,000 job losses arising from economic woes triggered by the sub-prime crisis – that means one in 10 of all workers are at risk.
Two middle-rung executives aged around 35 told HT," We are suddenly fearful of losing all that we have built up, working nine to nine almost six days a week."
Young double-income couples who went for plush houses in premium zones now fear a radical change in their lifestyles. A silver lining to the cloud hanging over the City might be the news that Chancellor Alistair Darling is said to be finalizing a package that could ease up money markets and inter-bank borrowing to avert a downturn.
The credit problem has been compounded by the fact that mortgage lenders are continuing to raise their rates. Even as Gordon Brown appealed to bank chiefs to pass on interest rate cuts, the Halifax, Britain’s biggest mortgage lender, announced that it would increase rates on some of its most popular deals by 0.5 percentage point. Experts expect other lenders to follow Halifax’s lead.