As if the Nick Leeson “rogue trader” episode of 1995 was not enough for the financial markets to digest, we have today seen inter-market fraud taken to a new level with news that ONE rogue trader has taken a $7 billion gamble with the funds of establish French Bank Societe Generale – and lost the lot!

The person in question is believed to be Frenchman Jerome Kerviel, a 31-year-old trader who worked on the firms Delta One products team, which basically involved taking large positions on the future movement of share prices. The fraudulent transactions seem to have taken place between 2007 and 2008, and using a number of techniques which he seems to have gleaned from his time in the back office, the trader has managed to conceal his position until now.

While the Bank will still report a profit for the year, the massive hit on the bank’s asset base will force them into the market to raise more capital to shore up their balance sheet. The banks shares were suspended at the opening of today’s market trading but soon resumed after the announcement, immediately falling 3.6%. Societe Generale are unwilling to give away much detail until a full review has been carried out, but there are major question about how a trader earning less that 100,000 Euros a year has been able to rack up such large positions, apparently unnoticed by the company’s accounts department.

There is also a secondary problem for the bank now that this situation has been released to the public – if one trader could hold the bank over a barrel to the tune of $7 billion, are there any more skeletons in the cupboard?

Until a full review of the banks positions and internal procedures has been carried out – not to mention probable intervention by the regulators – there will be a sense of uncertainty regarding the company and the share price is likely to suffer further during this period.

Those of you who checked the price of your banking shares on Friday would have been dismayed to find that the sector is yet again in the spotlight and under more pressure.  While the debacle of Northern Rock is bad enough, there are rumours that at least one other UK bank is in trouble, with Barclays Bank being the name mentioned by many.  So what is happening?

The problems of today can be traced back some time, to an age where new and exciting financial instruments were created and sold around the world to a whole host of banking giants.  In the good times these instruments often forge ahead in value, but when markets hit a rocky patch they can collapse with many unsure where the final buck will rest.  It is this uncertainty, and knock on effect from the credit crunch, which has opened up Barclays Capital to a number of rumours. 

Barclays Capital has been one of the main drivers behind the rise in stature and profitability at Barclays, although it is often hidden away from public viewing.  The division has built a great reputation for creating and investing into a number of modern day investment instruments, often creating massive profits and commission payments along the way.  However, alarm bells started ringing a few weeks ago when one of the company’s senior mangers went AWOL.

While Barclays have refuted allegations that they have approached the Bank of England about a rescue loan, the rumours will just not die.  This is not the first time that Barclays has been rumoured to be struggling, with the Bank apparently in talks with the Bank of England around about the time Northern Rock hit the buffers. 

It will be interesting to see what happens with Barclays Bank, as this has the potential to drag the sector lower and lower as investors look for the next casualty.  Credit crunch part two has certainly begun, but when it will end is anyone’s guess.

In a move which is sure to have epercussions for world stock markets when they reopen on Monday, the Dow Jones was rocked on Friday, falling over 2% after a raft of downbeat announcements.  It  seems that the combined effect of announcements by Caterpillar and Bank of America have brought home the delayed impact which the recent credit crunch will have on the economy.  As we all know, if the US sneezes, the rest of the world catches a cold, so influential are their markets.

So what does this mean in the short term?

In what some may see as a healthy correction, you can expect a fall in world wide markets in the short term and it seems inevitable that interest rates in the UK and US may have to move lower to lessen the impact on economies. 

What happens if the economy slows?

A slowing economy can have a massive effect on employment, investment and the government budgets for public services.  The more people unemployed will reduce the tax intake, which will mean either additional borrowing by the treasury or less money for public services.  The economy is like a large ship which is very hard to steer, and takes a long time to change direction.

The authorities now have an excuse to reduce interest rates, and while there have been reductions overseas, the Bank of England have held steady and not taken any knee jerk decisions so far – which has been applauded by many, but criticised by others.  The next few months will be vital!

Another day another rumour about the future of troubled bank, Northern Rock, only this time a new name seems to have entered the fray in the shape of Richard Branson’s Virgin Group.  While this is the latest in a long list of rumours, there does appear to be some substance behind the story.

It has been reported in a number of UK newspapers that Virgin are in talks with various US investors who would supply the finance for the group going forward, with Virgin looking after the day to day business of the bank.  While there is some confusion as to whether they would take overall control of the group, or just take a controlling stake, it seems that something is definitely going on behind the scenes.

As a number of observers have suggested, it looks as though the Northern Rock name may soon disappear, with the bank reverting to the Virgin Money brand if the deal happens.  In a short space of time this would remove the uncertainty about the future of the bank, as well as offering a much strong financial set-up.  The Virgin Money brand is also on the up, and while this would be a big move for the business, it is more than capable of taking on such a venture.

However, there has also been much speculation about other potential offers for the troubled bank, with US and other overseas parties being mentioned.  While the likelihood of a bid battle for the group is unlikely, bearing in mind the current situation, the likelihood of the group surviving in some shape or form seems to be improving with each day.

While there have been many doom and gloom merchants on the TV and in the media, forecasting massive falls in stock markets, and a slowing of the worldwide economy, we have yet to see any confirmation, but is it on the way? Or has the financial world rode out the dangers of the credit crunch?

On the surface it seems as though worldwide markets are now over the worst, but is this really the case, or is there a storm brewing for the future? Historically we will not see the worst effects of the recent episode until the announcement of company results, with all eyes on the financial sector.  There is no doubt that holes have been blown open in balance sheets, and there is pressure on profitability, but is it really under control?

The price of gold has been rising steadily over the last few months, and is close to an all time high.  Seen by many as a safe haven in times of trouble, it has often moved in the opposite direction to worldwide stock markets.  Will the gold price fall back, or have markets remained a little too resilient after the recent episode? As we mentioned above, the full impact of recent events will not become apparent until company’s release their half year and full year profits, and more importantly forecasts for the immediate future. 

A prominent economic group have recently forecast that up to 6,500 jobs are at risk in the City of London’s financial district – a hangover from the credit crunch.  In the UK it seems as though the economy is set for a period of great turbulence, which was part of the reason why Gordon Brown even contemplated calling a snap election.  While the skies may be clearing, we are not out of the woods yet!

While we are currently experiencing a short term lull in the US credit crunch crisis, it has already had a major impact upon the corporate finance industry, the movers and shakers who put the big takeovers and mergers together. While funding has been relatively cheap for some time, the ongoing credit crisis has seen funding costs literally shoot up over night. So what next?

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There are a number of implications for the current situation, the lack of corporate funding being perhaps the main one, but stock prices are set to fall further as well. Over the last 2 years we have seen a number of high profile mergers and acquisitions, something which has impacted upon the share price of many companies. For every takeover or acquisiton which has actually happened, there have literally been another 100 rumoured ones yet to materialise. So how does this effect stock prices?

Much of the recent boom in stock markets, especially in the US, has been on the back of takeover speculation which has pushed some share prices to crazy prices – prices which can easily fall sharply if no takeover occurs. As funding for such takeovers has become more expensive, and it will be difficult to raise large sums of money in the short term, we will see much of the “froth” taken off many share prices.

Even when stock markets around the world have calmed down, the froth from the ramped up prices will continue to fade away. The effects are then two fold, in that stock markets will slowly fall back to more realistic levels and investor sentiment may turn negative as they slowly see their investments falling back down to earth.

All in all we are likely to see a lot less corporate activity over the coming months, and this current credit crunch is by no means over – the US Federal Bank would not take such drastic action as seen last week, without knowing there is further bad news to come.

Worldwide stock markets have today received a welcome, although unexpected boost with news that the US Federal Reserve have reduced US base rates by 0.5% to 5.75%.  In a move which was designed to both inject liquidity into the money markets, and give the economy a much need boost, stock markets have rebounded sharply from recent lows.  But is the worst over?

While a move such as that experienced today is not so unusual, in the past it has often precluded more bad news which the Fed were aware of, but which was maybe not yet in the public domain.  Even though the markets have good reason for this show of short term relief, the situation is far from over and there will still be further fallout.

True, there will be more readily available liquidity in the markets which may see many firms over their bad times, but some companies have already suffered beyond reasonable repair.  Many of Wall Street’s larger companies have become embroiled in the situation, and the fact that many are looking to be bailed out by larger banks around the world is a marked change from their front running attitude of the past.

The stock market is a volatile and unpredictable beast at the best of times, and it has a habit of biting back just when you think you have tamed the beast.  Today’s substantial buying pressure has been greatly received, but those who think the situation is now over may soon be disappointed.  The central banks around the world cannot support such man-made situations forever, and there will be some form of accountability at some stage – “pay back time”. 

Once the current euphoria calms, many will still wake up to the fact that the US property market is still in big trouble, personal debt has never been higher, and much of the recent stock market rise was pinned on the back of takover and merger rumours.  It is highly unlikely that we will see an immediate move back to wild takeover speculation, something which may bring many more share price valuations back into line with reality.

It is essential that investor tread cautiously in what is still a difficult period for world markets.

Commonly referred to as the “suckers rally”, worldwide stock markets have returned to their recent down trend after a recent rally which tempted some back into the market.  After a few days of rest bite, we are now seeing the first cautious statements from some of worlds largest companies, with many forecasting that the situation will get worse before its gets better.

We have seen statements from retailers, manufacturers and investment companies, all of whom have taken a similar line in their reading of the situations.  The next step will be some official reductions in the expected growth of both local and worldwide economies, which could well lead to further profit downgrades and even sell recommendations.  When you also consider that a vast number of recent takeovers rumours will soon disappear, as funding becomes more and more expensive, the premium in many share prices will soon evaporate.

Attempts by central banks around the world to shore up the money markets, by injecting much need liquidity, have had a short term impact but they cannot continue bailing out the markets for much longer.  Sooner or later the market will find its natural level, a level which will be a reflection of the concerns of the moment.

All in all the next few months are going to be vital for both local and the world economy, although the probable slow down in economies may well reduce the likelihood of further base rate rises both in the UK and across the Atlantic.  However, for many investors, both directly and indirectly exposed to the stock market, this will be little compensation with stock prices likely to be under pressure for some time to come.

While the US sub prime lending crisis continues to unfold, the effects are now being seen on the European markets with above average demands for cash from those banks who have seen their balance sheets effected over the last few weeks.  Even the European Central Bank (ECB) are playing their part, injecting some $130 million into the system.  So what really is happening?

The concerns about sub prime lending in the US, and the deterioration in worldwide stock markets, have been the main catalyst for the recent money market problems.  While on the surface the problems appears to be confined to the US for the moment, today’s financial markets are very different from years gone by.  Complicated financial instruments are now common place, with many mortgages, loans and other financial investments chopped, split and repackaged for sale to other financial institutions.  As a consequence, many of the worlds largest banks will have substantial exposure to the US market, and many will be suffering at the moment.

The strength of the ECB support has spooked many in the market, as the reaction has been even above and beyond the support for 9/11.  Do the ECB know something which is not public knowledge or are they just trying to calm markets? Until the know sub prime lending situations unravels there will be those sceptical about the level of support, and the fact that the ECB have commented that more funding will be available, as and when required.

In the meantime the short term lull in the fall of worldwide stock markets is over, with both the US and European markets taking a hit over the last few days.  The worst situation for any stock market is one of uncertainty, and until the picture becomes clearer we can expect many more days of wild fluctuations.

As we see the fallout from problems in the US sub-prime credit industry continue, it is now starting to have a major impact upon other stock market around the world.  All of the major markets such as the UK and Japan are moving in tandem with the current volatile attitude of US investors.  So where next for world wide markets?

Over the last couple of years we have seen worldwide stock markets buoyed by takeovers, mergers and a high level of corporate activity.  This search for the next “takeover” has pushed many sectors and individual share prices to unsustainable levels, levels which do not represent the true value of a company.

The recent bout of investor profit taking, and general lack of confidence in the market has seen the so called “takeover” premium evaporate form many share prices, with many observers believing that fair value for many sectors is still some way off.  On top of this we have an ongoing crisis in the US sub-prime lending market, a market which has historically “called” the turning point of many economic cycles.

In the words of the old stock market saying, “the US sneezes and the UK catches a cold”, a phrase which now has great relevance to the rest of the world.  The US is such a power house in world trade that any fall out in their own economy is sure to effect worldwide markets.  Investors should expect a continuation in the current down trend, as well as much volatility along the way.  While there appears little chance of a crash, it is well worth keeping a close eye on the markets!