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Finance companies in the United States are continuing to feel the pressure created by the sub-prime mortgage situation. Reports indicate that bonuses for employees in the financial sector have reduced by 5% during 2007, although the not inconsiderable payout still managed to total $33.2 billion, with the individual average bonus standing at over $180,000. It is difficult to know how the US financial sector is performing; looking at finance companies based in New York, 2007 started on a high with reported profits of $39 billion for just seven companies in the first six months.
However, the second half of 2007 told a different story with 6 of the 7 reporting losses as the sub-prime crisis effect deepened. In a very prompt declaration of results, the state controller reported losses of $28 billion for the latter half of the year. None of this bodes well for financial institutions worldwide, all of which are bound to feel the effects emanating from Wall Street; whether they are only ripples or waves large enough to 'rock the boat' remains to be seen.
Circumstances in any country affected will have a major part to play, where strong economies will have a better chance of riding out any storm whereas the weaker ones which are more subject to external pressures could have to take drastic action to avoid serious problems. One of the first targets could be the sub-prime mortgage markets themselves where there are signs of increases in repossessions and a widening gap in interest rates on offer for sub-prime and prime mortgages. The situation remains fluid and investors will need to keep a 'watching brief' on actions taken by the US administration to counter the current trends; this must include the possible effects of the presidential elections.
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