Pickfords, Britain's oldest and largest removals company, is on the verge of a fire sale to avoid a financial crisis that would put up to 1,300 jobs at risk, The Times has learnt.

The loss-making company is trying to sell some or all of its business as it seeks to secure additional funding to help to pay staff and creditors.

If it failed, Pickfords would become the first high-profile British casualty from the slowdown in the UK housing market and the collapse of the American property sector.

Pickfords, which is registered in Britain as Sirva UK Limited, managed to pay its January wage bill two weeks ago with a £350,000 cash injection from Sirva Inc, its troubled American parent, according to company filings. Pickfords' US parent, part-owned by Clayton, Dubilier & Rice, the private equity firm, filed for Chapter 11 bankruptcy protection last week, adding to the pressure on the UK business to find a cash injection to keep Pickfords afloat while it seeks a buyer.

Pickfords, which dates back to a 17th-century Pickford family packhorse business, is suffering from what its American parent called “significant short-term cash obligations. If a solution is not found to the short-term funding requirement, the directors of Sirva UK Limited must consider filing for an appropriate UK insolvency procedure.”

Talks are under way to sell parts of Pickfords to a London-based company. The buyer would take the UK group's assets in return for “taking on certain liabilities”, Sirva Inc said in documents filed with US regulators. Without extra cash, Pickfords may be forced to try to sell itself “in an insolvency procedure, for example administration”, company filings said.

Brad McCarthy, Pickfords's finance director, said that the company had sufficient cash to pay its staff this month. The payment from its US parent, he said, was “nothing out of the normal ... Quarter one for the moving industry is quieter and we send money to them in busier times - it is the same as has been happening in the past ten years.”

Administration would afford Pickfords similar protection from creditors as that granted to its American parent through Chapter 11 bankruptcy, but Pickfords's management would hand control of the British business to an independent insolvency expert.

“If the sale cannot be completed at all, the company [Sirva Inc] will likely wind up the UK and Irish businesses pursuant to an appropriate UK insolvency procedure,” Sirva Inc said.

However, Mr McCarthy said: “I am very confident at this stage. There is no issue of short-term cash. We have a number of alternatives. I can say with a reasonable level of confidence we are able to find those needs.”

Sirva UK made a post-tax loss of £1.7 million for the year to December 31, 2006, on turnover of £88 million, after accruing post-tax losses of £15 million and £30 million in 2005 and 2004.

Mr McCarthy said that the Pickfords UK removals business and the group's Irish insurance business together made a loss of about £1 million in 2007 and he forecast combined losses of about £1.5 million in 2008.

“We are experiencing a difficult first half of the year due to the housing market, so we are not expecting to improve from 2007. Current trading volumes are above where we expected as we were pessimistic on quarter one,” he said.

Sirva UK has a deficit in its defined benefit pension scheme of about £10 million and has agreed with pension trustees to pay £1.6 million per year into the scheme over ten years, starting in April 2008, company filings indicated.

Sirva UK is owned by Sirva Holdings, whose latest published accounts record £34.8 million of pre-tax losses on turnover of £139.8 million for the 63 weeks ending March 13, 2006. That followed a £32 million pre-tax loss on £157 million of turnover for the year to December 25 2004. Sirva Holdings registered total liabilities of £151 million at March 13, 2006.

Sirva Inc obtained court approval last week for $150 million of emergency funding from JPMorgan, its main bank lender, as part of its move into debtor-in-possession bankruptcy protection for between 60 and 90 days. That loan matures at the end of June.


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Northern Rock was officially reclassified as a public enterprise yesterday in a move that means one of the Treasury's cherished rules for the public finances has been breached.

The Office for National Statistics said it had taken the decision to designate it a state entity because the size of the government's support for the stricken bank meant it had effective control. The move has the effect of bringing up to £100bn of Northern Rock's liabilities onto the national debt.

Although the Treasury said the move was only temporary, it means that one of Gordon Brown's two fiscal rules - that public debt should not exceed 40% of gross domestic product - will be broken. The national debt stands at £537bn, equivalent to 37.7% of GDP. The ONS said the reclassification would add 6.7 percentage points to that figure, taking it to 44.4%.

This is more bad news for Chancellor Alistair Darling, who is struggling to keep public finances under control and is due to present his first budget on March 12.

Shadow chancellor George Osbourne said: "This means that a lot more debt is going onto the public balance sheet, and we as taxpayers are all more exposed to the problems of Northern Rock."

Northern Rock turned to the Bank of England last September after the credit crunch left it unable to borrow through money markets. In an attempt to calm panicking savers, the government guaranteed all deposits in the event of a collapse.

The Treasury is trying to find a buyer for the lender, prompting critics to claim it is under public ownership and should be nationalised. The ONS said its decision did not mean that the bank had been nationalised and government guarantees to the Rock would not be included in the public accounts.

"The financial liabilities of Northern Rock are substantial," the ONS said, but the exact impact of the move on the public finances was not yet clear and would not take effect until March at the earliest.

Vince Cable, the Liberal Democrats' Treasury spokesman, said it underlined the importance of ensuring that the loans made to Northern Rock are repaid. The Treasury said the reclassification would have only a temporary impact on the public finances and the government's fiscal rules were flexible enough to deal with such cases.

The ONS said the Bank of England would also be included in the public finances at the same time so that transfers between it and the Rock could be "netted out" as they are taking place between one public corporation and another.

It said government guarantees in relation to Northern Rock's borrowings and depositors were classified as contingent liabilities for national accounts purposes and therefore, in line with international standards, they would impact on the public books only if they were called upon.

Analysts said that though the breaching of the fiscal rules was awkward for the Treasury, it was likely to be temporary. But they urged it to publish figures with and without the Northern Rock exposure.


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THE number of people whose homes were repossessed last year rose by 21 per cent, but repossessions are just one indication of the UK’s deepening debt crisis.

The scale of individual debt, both through mortgages and other debts such as credit cards and personal loans, has increased sharply over the last ten years. By the end of December 2007, total lending to individuals reached £1,409 billion, figures from the Bank of England show.

Of this £1,409 billion, £1,185 billion was mortgage lending with the remainder £224 billion consisting of consumer credit including credit cards.

This compares to the £419 billion of secured debt and £84 billion unsecured in May 1997.

This mountain of debt is taking its toll with Britons defaulting on unprecedented amount of loans. More than one million have fallen behind on interest payments, according to the Financial Services Authority, and another two million are “continually struggling”.

The debt advice firm Debt Free Direct estimates that between one and two million households are “permanently indebted” — meaning that while managing to juggle their debts and meet minimum interest payments, they will never repay the principal.

In 2006, it is estimated that UK banks wrote off an unprecedented £6.6 billion of loans to personal customers. That is 20 per cent higher than in 2005, which itself was 50 per cent higher than 2004.

The latest statistics from the Insolvency Service on bankruptcies and individual voluntary arrangements - private agreements between debtors and creditors that allow borrowers to avoid bankruptcy - show a quarterly fall in the number of individual insolvencies, though some experts fear this is just a blip in a longer term rising trend.

There were 24,846 individual insolvencies in England and Wales in the fourth quarter of 2007, a decrease of 3.9 per cent on the previous quarter and a decrease of 16.4 per cent on the same period a year ago.

While IVAs at 42,165 were 4.9 per cent lower than in 2006 when they stood at 44,332, bankruptcy orders, at 64,480 were 2.4 per cent higher than in 2006, when the figure was 62,956.

Mike Gerrard, head of personal insolvency at Grant Thornton, says: "Take no heart from this quarter's drop in personal insolvencies, they are merely the tip of the iceberg. From here on in it's going to be a rough ride for many individuals and the numbers going insolvent will rise."

Mr Gerrard believes insolvencies will rise as the credit crunch, slowing consumer confidence and the lagging effects of past interest rate rises finally begin to feed into the statistics.

Despite this gloomy outlook, there are some signs consumers are beginning to adapt their spending behaviour in response to today’s tougher conditions.

Latest figures from APACS show that although spending on plastic over Christmas was £32.2 billion, and that this is up four per cent on Christmas 2006, the 2007 figure marks the slowest year on year increase in spending over the same period for four years.


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Kerry Katona faces bankruptcy within just 30 days after failing to pay a huge tax bill.

Pregnant Kerry missed a £380,000 instalment on a £1.2million debt.

And The People has learnt papers have now been served on the troubled ex-Atomic Kitten singer giving her a month to cough up.

A source said: "It's reaching crisis point - unless she acts quickly she will be declared bankrupt.


"She's forking out for cars and a flash lifestyle, yet thinking she shouldn't pay taxes like the rest of us."


Kerry was handed the £1.2million bill last year.


But the mum of three claimed she could not pay it in one go - despite earning £2million a year from ads, books and magazine deals.


She and cabbie husband Mark Croft, 37, drafted in insolvency advisors, saying they had huge credit card bills and thousands of pounds of other debts.


Tax chiefs agreed to spread the payments - and Kerry handed over £380,000 as a first instalment. But the second whack is now overdue.


Papers were served last week to her £1.5million mansion in Wilmslow, Cheshire, summoning her to a second hearing.


The source said: "The papers basically say pay up in 30 days or you will be declared bankrupt."


Last month, though, the star proved she was far from skint by buying a new £127,000 Ferrari for Mark.


And her Christmas gift to him a month earlier was an £11,000 Ducati superbike.


The couple also have a £135,000 Lamborghini, a £100,000 Aston Martin, an £80,000 Porsche 911 and a £55,000 Mercedes.


In September, Kerry paid £50,000 to fly family and pals to Italy to see her renew her wedding vows to Mark.


She has also splashed the cash on partying. And she's still paying out in her ongoing custody battle with her Westlife ex-hubby Brian McFadden over their daughters Molly, six, and Lilly-Sue, five.


But her earnings are just as high.


Ads for Iceland stores are worth £750,000 a year - though bosses have now ditched Kerry to go for a different image.


She gets £400,000 a year from a magazine column.


And she has more cash coming in from an autobiography, an advice book and a novel.


Kerry has also signed up for an MTV show about her life called Crazy In Love.


A pal said: "She is useless with money. She has no concept of saving and spends whatever she feels like.


"It's not on - she needs to get real."


But there are signs Kerry IS trying to economise.


A bash after baby Heidi's christening in Warrington was a £13-a-head buffet - at a local curry house.


A spokesperson for Kerry said: "She has buried her head in the past over this. She has paid out £250,000 in unpaid tax and now intends to make a further two payments before the deadline."



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Northern Rock will appear on government accounts, the Office for National Statistics has decided.
The decision from the Office for National Statistics (ONS) had been widely expected as a result of the government's rescue package.

It means the government may be at risk of breaking its rule to keep net debt below 40% of national income.

The ONS stressed that the statistical change to public status should not be confused with nationalisation.

'In charge'

Under the change, Northern Rock is to be classified as a public financial corporation for statistical purposes.


This means that the ONS judges that the government is in charge of Northern Rock's "general corporate policy".

"This is largely due to powers that the Bank of England has taken as part of its secured lending facility arrangements," the ONS said.

It gave examples of the things that Northern Rock cannot do without government permission - such as corporate restructuring, making dividend payments and buying or selling certain types of assets.

'Risk of loss'

The BBC's business editor Robert Peston reckons Northern Rock could add up to £100bn to the national debt, mostly secured against the mortgages of the Rock's customers.

"Even so, a portion of that £100bn is genuinely taxpayers' money at real risk of loss, because the value of those assets could turn out to be less than the government hopes."

"However, it's impossible to assess that risk of loss with scientific precision," Robert Peston said.

The statistical change will be backdated to 9 October 2007, which was when the Treasury extended its guarantees to cover new savings deposited at Northern Rock.


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More than 10 million people may default on repayments for mortgages, credit cards or personal loans by the end of the year.

A forecast from one of Britain's biggest accountancy firms, says that "the merry-go-round of credit is about to stop", as millions of people realise their take-home pay is not enough to service their debts.


Britain is more indebted than any other country in Europe


According to KPMG, 22 per cent of those adults with debts - equating to 6.6 million - are already finding it difficult to meet their repayments.

However, 35 per cent - or 10.6 million - are worried they will find it even more difficult to pay back their debts in a year.

The figures come from a KPMG survey conducted by YouGov and commissioned by the ITV documentary Repossession, Repossession, Repossession.

The programme, to be shown on Wednesday night, is presented by Jeff Randall, The Daily Telegraph's Editor at Large, and exposes how a decade of cheap credit and rising house prices have conspired to leave millions of people with insurmountable debts.

Consumer debts have trebled in the past decade with each household in Britain owing £51,730 on average - a total of £1.345 trillion. The country is more indebted than any in Europe.

Steve Treharne, a partner at KPMG specialising in insolvency, said: "In my view 2008 will the year the chickens come home to roost. A lot of people have been living the life of Riley on credit. They have been able to borrow at 0 per cent finance, and been able to take out new cards at will.

"This is all going to have to stop. It is unsustainable," he said, arguing that not only are house prices - on which much of the debt has been secured - set to fall, but also that banks have already started to cut back on extending credit.

Last week, Egg wrote to 160,000 of its customers saying their cards were going to be stopped.

This move followed a similar tightening of credit terms by Barclaycard, Britain's biggest credit card lender, which has lowered the credit limits for half a million of its customers.

Mr Randall, who as part of the programme met people who had been driven to the point of suicide by their debts, said: "What we believed was widespread economic prosperity turns out for many to have been an illusion, funded by excessive debt."



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THE boss of a Greater Manchester debt advice firm has hit out after figures showed the number of people declared insolvent fell for the first time in nine years during 2007.

David Mond, chief executive of AIM-listed ClearDebt, said unnecessary intransigence from creditors such as banks caused the decline, by refusing to sanction many individual voluntary arrangements to consumers.

This meant thousands more people sunk further into the mire as they struggled with their credit card, storecard and other debts, he added.

The number of IVAs fell nearly five per cent following a long-running dispute between creditors and providers. The wrangle, which was resolved last week with the agreement of an IVA protocol, led to around one in six applications being turned down by creditors.

Mr Mond, whose business is based in Timperley and operates mainly via the internet, said: "IVAs have fallen again for one very simple reason - there are creditors, and creditors' agents, out there who have taken the unilateral choice to reject IVAs no matter what the case in hand offers - no judgement, no analysis.

"This has caused a massive level of distress to over 16,000 people according to our projections. They have not gone into bankruptcy or an IVA - just been allowed to get into more debt due to creditor intransigence."

Mr Mond added: "ClearDebt believes these figures clearly show that IVAs have been unnecessarily blocked in the past but we are hopeful that the protocol agreement will allow the insolvent debtor to access the most appropriate debt solution, rather than sink further into a mire of debt."

Nationally, the total of 106,645 people who were unable to keep up with their debts was 0.6 per cent down on 2006, but still the second highest figure on record, the Insolvency Service said. At the same time the level of bankruptcies jumped by 2.4 per cent during the year.

Experts warned that the fall in insolvencies was the lull before the storm, with most expecting the number of people unable to keep up with their debts to begin climbing again this year.

They expect insolvencies to reach a record level during 2008, as already overstretched consumers struggle to cope with rising living costs and higher mortgage repayments for people coming off low fixed-rate deals.

The figures also showed that the number of people declared insolvent fell for the fourth quarter in a row during the final three months of the year.

A total of 24,846 people were declared insolvent in the three months to the end of December, 16.4 per cent fewer than in the final quarter of 2006.

Within the total, bankruptcies fell by more than eight per cent year-on-year, while IVAs dived by 27.3 per cent, probably as a result of the ongoing dispute.



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The number of people becoming bankrupt in Wales has doubled in six years official figures indicate.
According to insolvency statistics, in 2000 just over a 1,000 bankruptcy orders were made in Wales.

But the latest figures are expected to show that by the end of 2006, that number will be in excess of 2,000 bankruptcies.

The Welsh Centre for Credit Counselling says it has seen debt inquiries leap from 1,000 a year to 6,000 in 2007.

The Liberal Democrat MP for Ceredigion, Mark Williams, who asked the UK's business secretary for a breakdown of insolvency figures in Wales, said he is becoming increasingly concerned by the issues.

"This is a real problem and I think we have got to look at three particular areas," stressed Mr Williams.

"One is financial education, which to be fair to the government, it is now considering.

"One is the issue of building and promoting independent advice in a far more positive way than we have done before.

"And thirdly, and most fundamental of all, we've got to look at the practices of loan sharks and the outrageous way they are able to operate."

According to the Citizens Advice Bureau (CAB), consumer debt is a growing problem.

"In Wales, we've seen a 20% increase in clients coming to CAB for help, and we've seen an increase of over 30% of clients for information on bankruptcy," said Joe McShane from CAB.

Repossessions

The housing charity Shelter said its own figures also showed that the number of borrowers struggling to meet mortgage repayments has soared by 700%, while the Financial Services Authority has already warned it expects home repossessions across the UK to rise by 50% in 2008.

However, Wales' Social Justice Minister, Dr Brian Gibbons insisted that the assembly government was determined to help educate the public about their personal finances.

"In our schools we're trying to introduce changes in the curriculum so that young people will be better informed about how to use credit," said Dr Gibbons.

"We are trying to establish credit unions, for example, in all schools. We're trying to increase the use of credit unions in our communities across Wales so that people will be able to get access to savings.

"And equally, we are taking action with the UK government on rogue lenders and people who are operating outside the system, loan sharks and so forth."



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There's a myth that the huge growth in personal bankruptcies over recent years is all about our spendthrift, have-it-all culture. The argument goes that the numbers published today for 2007, which almost match the record figure for 2006 of 106,000, are chiefly made up of men and women who bought too many shoes, swapped their old TV for an LCD flat-screen and ordered a new kitchen when they were bored of the last one.

Yet most people are forced into bankruptcy by a finance industry that bamboozles them with complex loans that are riddled with tripwire clauses. It is these clauses that generally push people over the edge.

Most people in a suburban semi will struggle to spend more than £10,000 on a new kitchen or conservatory. As for shoes, while there are studies that show some of the rise in insolvencies is due to people blowing thousands of pounds on high living, it is difficult to spend more than £10,000 on a credit card without noticing.

The chief problem comes when the 0% teaser rate on the credit card runs out and a 17.5% rate kicks in. The bank tells the borrower not to worry and persuades them to switch their debt into a personal loan; then they are locked in. If their income varies at all over the next three or five years and they miss a payment, they will start to be whacked by fees and charges. If they have succumbed to an advert on daytime TV or the back pages of a red top newspaper, the fees and charges are levied from the outset. If the borrower opts for another credit card, it is usually to pay off the old debt rather than just keep spending.

For most people who end up in the bankruptcy courts, a standard £10,000 loan is the starting point for unmanageable debts of £50,000 and more.

The insolvency figures for the last three months of 2007 saw a noticeable slowdown against the last three months of 2006. Most of that relates to a dispute between the banks and the ambulance-chasing IVA firms that sell a fixed five-year insolvency plan. The banks have blocked customers using IVAs because they hate the charges imposed by the IVA firms and the claims they make to negotiate away up to 80% of the debt, at the bank's expense.

A hiatus in the number of people taking IVAs is unlikely to last, though. According to most professionals in the insolvency industry, a combination of the credit crunch that is restricting lending across the board, and the banks' determination to reel in the backlog of "debts", will push the numbers up again over the next year.

Will this trigger the UK's own sub-prime crisis? At the moment that possibility looks remote. Talk to the Bank of England and it is sanguine about the effects on the economy. A report out yesterday from the National Institute for Economic and Social Research said fears for the economy were overstated. The independent thinktank said that outside the finance industry in London, commerce and industry was in good shape.

The tragedy is more for the people involved. They are not, in the main, spendaholics who have been served their just deserts. They work on short-term contracts that are not renewed. They are the recently divorced and the poorly educated. They bought Christmas presents in hope that something would turn up to pay the bills. They are financially illiterate in a world where the sale of loans is becoming ever more complex.



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Government measures to help consumers manage their growing mountain of debt have come too little too late, according to insolvency experts at Midlands law firm Browne Jacobson.

Findings by price comparison website uSwitch revealed that as many as five million people, or one in 10 adults, spend more than they earn on a monthly basis. A further one in five consumers have no spare money left at the end of the month and half of those living beyond their means rely on overdrafts and credit cards to plug the gap.

The Government recently introduced plans that would allow consumers with debts to take out a court order enabling them to have a break from making repayments. Under the radical new proposals those who fall into financial difficulties through a change of circumstance, such as losing their job or divorce, will be able to stop making payments on personal loans, credit cards and other debts for up to a year by applying for an Enforcement Restriction Order.

In the majority of cases, interest on the debts would continue to accrue during an ERO but borrowers would not be hit with penalty charges or other fees while the order was in force.

Payments to creditors would cease and creditors would be barred from taking enforcement action without the permission of the court.

Not all debts would be included in an ERO. Child maintenance, student loan and mortgage payments will be excluded. Utility bills, rent arrears and council tax may also be excluded. There would be no upper limit on the debts that could be included in an ERO but the debtor must be able to show that they can continue making payments once the ERO comes to an end.


Vicki Dunstall, an expert in insolvency at Browne Jacobson, said: "These latest findings come amidst widespread concerns that higher debts may push more people into insolvency this year. For many people the proposed changes will be too little too late. We have had constant warnings about the mounting debt problem for years but it appears that both consumers and the Government have done little to curb spending habits.


"With the credit crunch now in its ascendancy and billions being wiped off the price of stock markets around the world there will be many people saying we told you so.


"Government plans to give those in debt a temporary reprieve will herald one of the most profound developments in UK bankruptcy and insolvency legislation in recent years. EROs will provide an alternative to bankruptcy and individual voluntary arrangements but will not be available until 2010.


"The other big loser under the Government's plans will be the payment protection market, a sector that is already under investigation by the Competition Commission for its low claims ratios and high commission rates.



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Bankruptcy orders rose 2.4 per cent over 2007 – with 64,480 people going under.

In total there were 106,645 insolvencies last year – new figures from the Insolvency Service (IS) reveal – with 42,165 people filing individual voluntary agreements (IVAs), a fall of 4.9 per cent.

However, the fall in IVAs is not being attributed to Britons getting their finances in order, but banks being less willing to accept the agreements.

In the last quarter of 2007, the effects of banks tightening their lending criteria in the so-called credit crunch did not seem to hit insolvency figures – although a rise in bankruptcies is expected in 2008.

Mike Gerrard, head of personal insolvency at Grant Thornton, said: "Take no heart from this quarter's drop in personal insolvencies, they are merely the tip of the iceberg.

"From here on in it's going to be a rough ride for many individuals and the numbers going insolvent will rise."

The last three months of last year saw 24,846 individual insolvencies in England and Wales - a 3.9 per cent fall from the previous quarter and a 16.4 per cent fall on the end of 2006 - with both bankruptcies and IVA levels decreasing.

However, Grant Thornton has already seen a "marked increase" in debt advice enquiries since Christmas.

Mr Gerrard said: "It's a tough climate out there with forecasts for a rise in inflation and a slowing economy, and that will inevitably flare up the insolvency figures over the next few quarters.

"We've probably seen the last of any decreases in insolvencies for at least the next six months."

The Insolvency Service also revealed a shift toward those in debt trouble filing bankruptcy petitions themselves.

In the fourth quarter of 2007 83 per cent of bankruptcies were made on the petition of the debtor, compared with 53 per cent in 1998.

However, credit rating agency Experian is warning people not to think of bankruptcy as an easy way out of debt.

James Jones, consumer education manager at Experian, said: "We want to make sure consumers are aware of the serious implications of choosing insolvency as a way out of money troubles, particularly as opting for bankruptcy or an IVA will affect your ability to obtain credit and other financial services for years to come.

"Also, because details of bankruptcy orders and IVAs form part of the ‘public’ information on your credit report, the information is often seen by landlords and employers who you allow to make a check, so choosing the insolvency option could affect your chances of renting a home or getting the job you want."

Analysis by Experian shows people in the lowest income groups – with lowest assets and most likely to find borrowing difficult as banks tighten lending – are most likely to face bankruptcy.

However, young families with children in mid-market terraced and semi-detached properties are more likely to choose IVAs.

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The chief executive of MBIA, the bond insurer which is fighting for its survival, has lashed out at "fearmongering" by analysts and investors who predict it could collapse and trigger a new wave of credit losses across Wall Street.


Gary Dunton said MBIA had enough money to cover two years' of guarantees on mortgage-related bonds, and was in the process of raising even more cash. He angrily dismissed speculation that the company could become insolvent, and said it was best-positioned to maintain its gold-plated triple-A credit rating. Mr Dunton's reassurances sparked a global stock market rally.

Share prices were buffetted last month by fears that a credit rating downgrade for MBIA and its peers – who together insure $2.4trn (£1.2trn) of bonds – could trigger a crisis for the financial system. MBIA said late on Wednesday it lost $2.3bn in the final three months of 2007, mainly because of projected losses on mortgage-related bonds. Across the financial system, hundreds of billions of dollars have been wiped off the value of such bonds, because Americans are defaulting on the sub-prime mortgages that underlie them.

Wall Street banks have written off more than $100bn, but the figure would be even higher if they had not taken out insurance with MBIA, its rival Ambac and other "monoline" insurers. When monolines lose their triple-A credit rating, banks are forced to admit their insurance could be worthless.

For example, the ratings agency Fitch downgraded Ambac's credit rating last week and analysts began forecasting Merrill Lynch would have to take a $1bn write-down as a result. Meredith Whitney, the respected financial sector analyst at Oppenheimer & Co, predicted Wall Street could suffer between $40bn and $70bn losses if the major monolines lose their triple-A ratings, but that almost half that would be concentrated in three firms: Merrill, Citigroup and UBS.

"Among the myriad of negatives that surround financial stocks today, we see no issue more critical than the fate of the monoline insurers," Ms Whitney told clients. "Many investors are of the belief that the fourth quarter was a 'kitchen sink' for all of the outstanding capital hits this credit cycle. When it becomes clear (as we think it will) that more charges are on the horizon, we believe the market will take another turn for the worse."

Ms Whitney predicted that neither the government nor the other Wall Street banks would come to the monolines' rescue, despite the negotiations being organised by the insurance industry regulator in New York.

Meanwhile, Bill Ackman, the hedge fund manager who has questioned the creditworthiness of the monoline insurers for five years, is predicting that both MBIA and Ambac will ultimately lose $11.6bn on mortgage-related derivatives.

Mr Dunton called that "fear mongering" by people with an interest in seeing MBIA shares fall, and he said the 80 per cent collapse in the company's value since last summer has been an "over-reaction". Chuck Chaplin, MBIA's chief financial officer, added: "We're going to work to capitalise the company to the point where there are no questions in the market from serious analysts, investors or customers about our capital position or our intent."

Stock markets around the world fell early yesterday following the downgrade by Fitch of a much smaller monoline insurer, FGIC. But Mr Dunton's comments reversed a 200-point loss by the Dow Jones Industrial Average in the US. The index closed 207.5, or 1.7 per cent, higher at 12,650.4. The FTSE 100's late rally – ending up 42.5 at 5,879.8 – spared the UK index from recording its worst January ever.


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A devastating verdict on the public finances was delivered yesterday by the respected Institute for Fiscal Studies (IFS). In its latest "Green Budget", the IFS argues that the Chancellor, Alistair Darling, would need to announce fresh tax increases amounting to about £8bn in this year's spring Budget to keep public sector debt below the Government's self-imposed ceiling, and to bring about the improvement in the public finances over the next five years that the Treasury predicts.


Without tax rises, the IFS said, "we expect the Government to have to borrow more than £40bn this year, next year and in 2009-10. We expect public sector net debt to hit the Government's ceiling of 40 per cent of national income in 2009-10 and to rise to 41.2 per cent by 2012-13. The Government would also break its 'golden rule' [to borrow only to pay for investment] over the new economic cycle". The IFS suggests the tax burden will rise to a quarter-century high by 2011-12.

However, "not least because of the Government's current political difficulties", the IFS does not expect to see a significant early fiscal tightening. "The Government is likely to argue that further bad news on the public finances will only be temporary and that fiscal policy should support monetary policy as the economy slows this year," it says.

But, the IFS argues, "temporary problems in the financial sector can have a bigger and more persistent effect on the public finances than the Treasury initially expects". The potential damage to the public finances by Northern Rock's liabilities also looms large. "This would probably add £100bn, or 7 per cent of national income, to public sector net debt. The Government should publish public finance figures with and without the impact of Northern Rock," the IFS said.

What the IFS calls "unpopular" decisions to stage public sector pay awards recommended by pay review bodies "generate only modest one-off financial savings, make little contribution to the fight against inflation, and threaten to undermine the credibility of the pay review body process".


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The chancellor Alistair Darling will today put the Financial Services Authority at the heart of his plans to prevent another Northern Rock style bank collapse, despite criticism of the City watchdog's handling of the crisis by an all-party group of MPs.

Launching a 12-week consultation on his proposals, Darling will argue that the FSA needs extra powers to step in at an earlier stage when a bank gets into trouble.

The chancellor also intends to create a special insolvency regime for banks that will give the FSA power to extract depositors' cash from a failing institution. He will say the reform is essential to prevent a bank failure leading to queues at branches and further loss of public confidence.

The proposals are expected to win favour among City firms, which have shown little appetite for tearing up the current tripartite system of regulation co-ordinated by the FSA, the Bank of England and the Treasury.

However, the Conservative party, which is also launching its banking regulation reforms today, will call for the Bank of England to be given the lead role in a crisis. Echoing plans put forward over the weekend by the Treasury select committee, the Tories argue the only way to avoid another Northern Rock is to end the confusion over who is in charge when a bank signals it is in trouble.

The shadow chancellor George Osborne said the central bank's role as lender of last resort meant it was logical that the governor should direct rescue operations.

Darling said under his new insolvency rules the FSA could force a bank to sell part of its business, implement a restructuring or take control of its board to keep the bank from going bust.

The power to ringfence customer savings will be coupled with a financial compensation scheme that must repay deposits within a week. Darling will say he will consult on the maximum level of compensation to be paid, which was raised to £35,000 after the Northern Rock crisis.

Treasury sources said ministers were open to arguments that the level should be higher, though the current level covers 97% of all depositors.

Osborne said he wanted the level set at £50,000. He added that pre-emptive powers for the Bank to deal with failing banks was a necessary step towards more coherent regulation. He said the government should endorse the central bank governor Mervyn King who is expected to be reappointed in the summer.

The Treasury select committee said a crack team of senior staff was needed to handle future banking failures.


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Prelude Trust plc, which invests in high growth tech companies, said that Administrators have been appointed to SiConnect Ltd, a semiconductor company that has developed products for the Powerline Communications market.

Trust managers DFJ Esprit (formerly Esprit Capital Partners) have been seeking a merger partner or acquirer for the business. Investment bankers were appointed to lead the process however, despite a number of meetings with potential buyers, no offers were received and with no further investment funds available to the company, its directors decided to place the company in administration.

Prelude invested £3.8m in SiConnect, but had already accounted for the possibility of administration in its latest financial reporting statement.

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TeraView, specialist in terahertz solutions and technology for the pharmaceutical and life science industry, said it has conducted successful proof of principle for high speed measurements of coating thickness on tablets applicable to on-line tablet inspection.

The non-contact, non-destructive technique may also be extended to on-line measurement of other key product attributes, such as coating or core density tablets delamination and many other parameters characterising the performance of drugs which TeraView has identified with its products and collaborators.

In previous studies with its pharmaceutical customers, TeraView has demonstrated its terahertz products and solutions can help to accelerate drug development and design of new formulations, improve product quality and maintain in-specification product to minimise the risk of regulatory non-compliance.

+ + +

Product design and development consultancy 42 Technology appointed Richard Archer, founder and former CEO of The Automation Partnership, to its Board.

Mr Archer has more than 30 years’ pharmaceutical industry experience and will be instrumental in helping build 42T’s profile and sales in the life sciences market. He has helped many of the world’s top pharmaceutical companies to achieve new levels of operating efficiency by automating their R&D and manufacturing processes, and he pioneered an industrialised ‘drug discovery factory’ approach in the search for potential new medicines.

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CSR and Motorola said they intend to create an open industry forum to evaluate and foster enhanced Global Positioning System (EGPS) technologies. When used on a mobile device, EGPS technologies augment GPS to provide position information in demanding environments. The EGPS Forum is expected to advocate improvement to location technologies in mobile devices and is committed to meeting consumer and regulatory needs for precise and consistent levels of location information.

Current commercialised location technologies meet the basic needs of consumers and minimum regulatory requirements for widespread use in mobile phones – however, high value commercial services require location technologies that provide prompt, consistent and reliable position information, even indoors, within the limited power budget of a portable device. Emergency services also require accurate indoor positioning. The intended goal of the EGPS Forum will be to ensure that technologies which enhance GPS are put in place to meet these advanced requirements.

The EGPS Forum will be open to a broad array of participants from the telecommunications industry including handset manufacturers, location technology companies, network infrastructure providers and mobile network carriers. Initial activities of the Forum will focus on evaluating hybrid technologies that enhance GPS by combining satellite measurements with timing measurements taken from cellular networks and on establishing the underlying infrastructure to ensure full interoperability of this technology.


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Euro zone governments plan to issue the same mix of debt at the start of 2008 as they did in the first quarter of last year, but the ongoing global credit crisis may result in a tweak to the 600-billion euros schedule.
A year ago, the 10-year Bund future contract was a full three points higher than this January, and investors and issuers had no inkling of the liquidity crisis that later spread from the U.S. subprime mortgage market.
Since erupting in mid-2007, the crisis has seen investors pull out of peripheral euro zone debt and invest more heavily in safest-haven German debt and specifically short-dated debt.
While the height of the credit crunch last year saw corporate bond and asset-backed securities issuance dry up almost completely, analysts do not expect such a drought in government bond supply this year.
Some observers contend that the credit crunch could result in government debt supply issue dates being juggled and unscheduled issuance curtailed. As the recipient of safe-haven flows, Germany is the least likely, however, to juggle plans.
"Countries with a clear calendar like Germany wouldn't want to change their schedules, even if it would favour them," said a senior bonds trader in Berlin.
"They will try to maintain issuance. But more flexible on calendars might be issuers like Spain, Italy and maybe the Dutch."
A sharp steepening of the 10-30 year yield spread to 43 basis points on Friday from 27 basis points at the start of the month was just shy of the two-year peak struck on Nov. 27.


The spread was 42 basis points early on Monday.
If steepness persists, it could discourage issuers from selling ultra-long-dated bonds at auction -- a view shared by an official at one of the sovereigns.
"Investors could in that case just try to buy the paper in the secondary market later on if issuers go ahead and auction them," the official said.
"We are not the largest issuer in Europe, but we know that some of the sovereigns might decide it is too expensive to issue the bonds if yields are driven up. We could defer an issue to the third quarter. Ireland last year left it until September to issue a bond, but we wouldn't want to go beyond October," he said.
Issues mulled or pencilled in, like index-linked or foreign currency bonds, might be cancelled.


STICKING TO SCRIPT


For now, however, the 15-member euro zone currency bloc is sticking to last year's script.
Typically, the first quarter is the busiest for supply, and the 198 billion euros of paper for sale represents a third of the 2008 calendar.
In cash terms, around 21 percent of the first quarter issuance will be bonds with a 2-3 year lifetime, while a further 13 percent will be 15-30-year paper. In duration terms, long-dated paper issuance will have the larger share.
"The issuance by the sovereign debt issuers so far is comparable with patterns seen last year. The subprime mortgage crisis does not appear to have changed the issuers' plans," said Wilson Chin, bond strategist at ING Financial in Amsterdam.
But lower volumes traded in the Bund future and flakey participation in bond auctions so far this year indicate a drop in investor confidence, said Chin.
The flop of the German Bund auction on Jan. 2 was followed by French bond sales the next day which also suffered. Since then, Dutch, Spanish, and Italian bond auctions recorded weak results. The main problem for all tenders has been the lack of investors.
Some investors may be nervous because of the ongoing subprime crisis, said ING's Chin.
While weaker participation in debt sales might make sovereigns anxious, other factors were likely also to have a bearing. Short-dated bond yields are sharply lower than 10-year yields not only because of safe-haven flows but also because of the prospect of falling interest rates in the world's biggest economy, the United States.
"Issuers could look at their Q1 tax take, which in a credit crisis might be smaller, in order to adjust supply in the third and fourth quarters," said Marc Ostwald, a bond analyst at Insinger de Beaufort in London.
But unlike the sensitive swaps market or corporate bond and asset-backed securities, Ostwald said: "Govvies would be less likely to see supply dry up."
Nor would supply bloat out. "Unless you underestimated spending, such as defence and security spending, you won't need to change overall issuance," he added.

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A boom in the use of derivatives is giving creditors strong incentives to push troubled companies into bankruptcy rather than help rescue them, according to new research and industry experts.

A study by academics Henry Hu and Bernard Black concludes that, thanks to explosive growth in credit derivatives, debt-holders such as banks and hedge funds have often more to gain if companies fail than if they survive. The study suggests this development could endanger the stability of the financial system.


The findings highlight a crucial problem in corporate restructuring when more and more companies are facing financial difficulties as a result of the credit crunch and US economic slowdown. According to the research and industry practitioners, creditors have a strong interest in voting against a restructuring plan if they have bought credit or loan default swaps, which trigger payments when a company fails.

“Investors now accumulate positions in a company by targeting layers of debt or multiple layers of debt,” said Michael Reilly of the financing restructuring practice at Bingham McCutchen.

“Where their interests lie are less predictable, especially if they also hold credit default swaps. Their financial interests may be best served by forcing a default if they are on the right side of a CDS position.” The problem is compounded by creditors not having to disclose derivatives positions, making it very difficult for companies and regulators to find out their real intentions.

The study by the two University of Texas academics warns that the breakdown in the relationship between creditors and debtors, which traditionally worked together to keep solvent companies out of bankruptcy, lowers the system’s ability to deal with a credit crunch.

“Spread across the economy, the ‘freezing’ of debtor-creditor relationships can increase systemic financial risk,” says the paper, which has been sent to the Securities and Exchange Commission. “[It] can also increase the economy’s exposure to liquidity shocks”.

Marcia Goldstein, chair of the Business, Finance & Restructuring department at Weil, Gotshal & Manges, one of the biggest corporate restructuring law firms, said anecdotal evidence suggested this was a growing problem regulators should address. She added that the current bankruptcy code and securities disclosure rules were inadequate to address the explosion in exotic securities that make it possible for sophisticated investors to cloak their true economic interest.



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A bumper year for insolvencies is on the cards, with higher numbers of companies and individuals throwing in the towel, Financial Mail has learned.

The credit crunch, sluggish High Street spending and a 'quickie' personal insolvency regime will produce a sharp rise in numbers seeking legal protection from their debts.
Nick O'Reilly, head of business recovery at accountant Vantis, said: 'In the past two or three years a lot of businesses have survived because they refinanced.

'These are businesses that normally ought to have fallen over. But refinancing is no longer an available option.'

O'Reilly, president elect of the insolvency practitioners' professional body, R3, added that personal insolvencies were also likely to soar.

A change in the law from October will make it easier for people to enter individual voluntary arrangements (IVAs), an alternative to bankruptcy in which debtors repay some of what they owe with the rest written off.

The simplified IVAs (SIVAs) will reduce creditors' power to block an arrangement. One senior insolvency source suggested the new regime could cause the number of IVAs to rise from about 50,000 a year to 100,000.

Fourth-quarter figures for insolvencies are due on Friday.


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The Financial Services Authority does not deserve new powers to intervene in failing banks after its dismal performance in failing to spot the flaws in Northern Rock's business model, a parliamentary inquiry into the affair will conclude tomorrow.

A long-awaited Treasury select committee report into the run on the bank is also expected to criticise the Bank of England's role, including its decision not to inject liquidity into the banking system last summer when the credit crunch started to bite.

Alistair Darling, chancellor, takes flak in the report, but it is understood that the Labourdominated committee is less critical of his role in the crisis.

The MPs' report, which follows several months of inquiries, is the most comprehensive assessment yet of the lessons to be learnt from the near-collapse of Northern Rock last September.

It will call for largescale reforms to the way the tripartite regulatory system - the Treasury, the FSA and the Bank of England - operates, and argue that complacency, lack of communication and clumsy decision-making between the three bodies made a bad situation worse.

Aside from the Northern Rock board - which is pilloried by MPs for triggering the crisis through its flawed business model - the biggest criticisms are saved for the FSA, according to people who have seen the final text.

It will call into question the plan by Mr Darling to give the watchdog new powers to seize and protect depositors' cash when a bank gets into serious difficulty, and then to oversee its recovery. The MPs' preference is for the Bank of England - which is closer to the markets - to have a greater role in ensuring financial stability.

The FSA is accused of failing to spot the flaw in Northern Rock's funding plans or to encourage it to diversify its sources of funding.

Vincent Cable, Liberal Democrat Treasury spokesman, said: "The FSA has failed in every test since it was set up."

Conservatives argue that the Bank of England is better placed to oversee plans for a US-style insolvency regime for banks.

The chancellor will next week launch a three-month consultation on new banking legislation, including the creation of an insolvency regime, under which depositors' savings would immediately be secured when a bank got into serious difficulty.


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