City stars warn of months of turmoil ahead

Fund managers Tony Nott and Nicola Horlick say credit crunch could spread to the wider economy
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The Independent Online

Leading City figures have warned the credit crunch, which last week prompted Britain's first bank-run for 140 years, could continue for another 18 months.

With London's markets still reeling from the Northern Rock crisis, a number of star fund managers, including the likes of Jupiter Asset Management's Tony Nutt and Bramdean's Nicola Horlick, have warned that they expect the crunch to continue into 2008.

Mr Nutt, who manages more than £4bn worth of equities, said: "It's clearly going to take a long time for this to work through – we are looking in the region of 18 months." The veteran fund manager said the true scale of the crisis would become apparent only when UK and US investment banks reveal their fourth-quarter numbers.

His comments were echoed by the former Société Générale and Deutsche Bank star Ms Horlick, who warned of contagion spreading to the wider economy. "Financial services is such an important sector for the UK," she said. "If the turmoil continues and banks are forced to make redundancies, there's bound to be a knock-on effect."

Just weeks ago, Bob Diamond, Barclays Capital chief executive, said he expected a return to normal markets by October. But such an assessment may be optimistic.

In the US, Morgan Stanley, Lehman Brothers and Bear Stearns have collectively been forced to write down more than $2bn (£1bn) of mortgage and leveraged loan assets.

So far, redundancies at the major investment banks have largely been isolated to those working in the US mortgage arena, where as many as 60,000 have lost their jobs. Estimates suggest that up to 10,000 workers in the City of London could also face redundancy.