Risky loans are leading to a financial crash, leading bankers warned yesterday.
William Rhodes, senior vice chairman of Citigroup warned: ‘Lenders all too often, are setting aside key documentation and credit standards.’
Rhodes added that the surge in liquidity is the greatest he has seen.
Warning a crash is imminent, Rhodes said that while there has not been such a sustained period of global economic growth since before World War I, all upswings eventually run their course.
Also warning of the dangers of crash, Josef Ackermann from Deutsche Bank added: ‘As liquidity has continued to be high and the deal flow has accelerated we have seen a lowering of lending and investing standards in some markets.’
In a further sign of crisis as the effect of higher interest rates hit home, the number of new mortgage approvals in the UK fell to a 12-month low in April, the Bank of England reveal.
Mortgage approvals totalled 107,000 in April, down from 111,000 in March, the third monthly decline in a row.
Mortgage lending rose by £8.9bn, much less than expected.
City analysts are predicting a further rate increase before August, with rates hitting 6 per cent by the end of the year, a recipe for disaster for the housing market.
Meanwhile, figures out yesterday revealed a shock rise in German unemployment in May, breaking a run of 13 consecutive monthly falls.
According to official Federal Labour Office figures, the adjusted jobless total increased to 3,855 million in May, up 3,000 on the previous month, while the unemployment rate was unchanged at 9.2 per cent.
A 4,000 fall in the number of vacancies to 601,000 in adjusted terms, has given rise to concerns that Germany is entering a recession.
Commenting on the fall in vacancies, David Brown at Bear Stearns International said: ‘This is something that the European Central Bank must pay very careful attention to, a reminder that it cannot keep raising rates with impunity.’
Across the Atlantic, the latest official figures showed that the US economy grew at a rate of 0.6 per cent in the first three months of 2007, the weakest growth in more than four years.
The Commerce Department figure was a downward revision on the initial 1.3 per cent estimate, and down on market expectations of 0.8 per cent, as Americans imported more goods and firms cut back their supply stockpiles.
It was the slowest growth rate since the final three months of 2002.
Another significant factor was the downturn in the housing market, which saw a 15.4 per cent reduction in new home building during the quarter.
Earlier this week, minutes from the last Federal Reserve meeting showed that the central bank continued to see inflation as the ‘predominant concern’ for the US economy.
The Fed left interest rates unchanged at 5.25 per cent at its last meeting on 9 May, but economists believe the minutes indicate rates are set for a new rise.
