US Subprime Crisis Has Far-Reaching Effects

It has been said that when the US sneezes, Europe catches a cold. The subprime mortgage crisis has now reached out to European markets and in particular, to Germany. Recently, we have seen two German banks including Commerzbank AG reporting losses of over $100 million this year alone. Britain’s HSBC holdings, which is the world’s largest bank, made substantial purchases of US subprime subsidiaries a few years ago and as a result, has seen huge losses on the back of the current subprime crisis.

Another issue of concern to investors is that the subprime chaos is also affecting US real estate investment trusts, or REITS as they are more commonly known. Data shows that following the six year continuous growth trends adhered to by REITs , they took a 15% plunge early this year. This has had the knock-on effect of dragging European REITs down with them, bringing grave news for European investors.

It is still thought that this will ultimately encourage good deals to the surface, particularly in European financial services stocks. Many are confident that REITs will be included in this also. At the end of the day, it remains to be seen whether the US Federal Reserve decides to decrease interest rates or not, although it seems to be holding fast for the moment.

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