‘God has placed me here to solve the problem’ – so said the infamous John DeLorean of his decision to set up his ill-fated car factory in strife-torn west Belfast in the 1980s. This was no doubt what the central bankers of the US and Europe were thinking earlier this month when they announced (yet another) intervention to ease the problems of the global credit squeeze.

But despite the provision of billions in loans to ease liquidity problems (the Bank of England alone said it would increase the amount offered in its gilts auction on 18 December from £2.85 billion to £11.35 billion), and the cut in interest rates on both sides of the Atlantic, the markets refused to turn. The FTSE 100 promptly fell a whopping 195.6 points on 13 December, its biggest fall since August.

More pain to come
Part of the reason for the negative reaction – as the world and his aunt has pointed out ad nauseum – is that the full extent of the credit crisis has not yet played out. Many banks have declared their current losses (see table, right), but most analysts believe the instability will rumble on until the banks have completed the process of returning their securitised assets to their balance sheets. Until then – and please excuse the Rumsfeldian phrase – we just don’t know what we don’t know.

Intensifying the negative atmosphere is the enduring housing market slowdown. The Halifax reported that house prices fell by 1.1 per cent in November due to higher interest rates and increased mortgage repayment costs. The annual rate of growth is now down to 6.3 per cent, compared with 8.9 per cent in October. Of course, we Brits are still slightly better off than our American cousins. In the US, prices are expected to fall five per cent in 2007 and ten per cent in 2008.

And adding an extra, unwelcome, dimension to everything is inflation. UK inflation has been creeping up slowly these past few months – much to the chagrin of the Treasury – while recent statistics from the US showed factory prices have risen at their highest rate in 34 years.

No longer gilt edged
The biggest share price fall in the four weeks to 14 December among the beleaguered banks belonged to Northern Rock, which slipped 31 per cent to 96.2p. Chief executive Adam Applegarth finally resigned his post as it wrote down a further £281 million of its investments. On the bright side, Olivant, the private equity vehicle led by ex-Abbey chief Luqman Arnold, has been persuaded to stay in the auction alongside Richard Branson’s Virgin.

Royal Bank of Scotland eased 7.3 per cent to 432.75p as Citigroup repeated its sell rating and broker Cazenove speculated that it would need to raise almost £6 billion in a rights issue.

HBOS was off a similar amount – down 7.48 per cent during the period to 748p – on a less than enthusiastic trading statement, with Lloyds TSB falling 5.66 per cent since mid-November to 471.25p. Barclays reined in its fall to 1.5 per cent to rest at 525p.

Retailing woes
Keeping the banks company in the doghouse this month where an array of retail stocks. Sports Direct, a venture that has been on the market for less than a year, lost another 26 per cent after Merrill Lynch (the bank that floated the company) cut loose with a sell recommendation. Given that the company has issued two profit warnings and witnessed its value fall by two-thirds since its IPO, Merrill’s advice is hardly surprising.

Woolworths lost ground – dipping 13.25 per cent to 193p – as broker Shore Capital poured scorn on its ability to attract any sort of credible bid. Record store HMV restricted losses on its shares to 11.13 per cent, closing at 115.75p, after narrowing its first-half losses and providing comfort on current trading, while Home Retail Group, the owner of Argos, was down almost 14 per cent in the four weeks to 13 December to 334.5p. It had been lower but regained a little momentum on analyst comment that it had been oversold.

Mining sheen
The most excitement among the market’s behemoths was to be had, once again, in the mining and exploration sector, as bids, counter bids and rumours kept punters busy.
BHP Billiton’s £64 billion hostile bid for Rio Tinto has continued to enthral. Rio cheered the market as it bolstered its resistance to the terms offered by the world’s biggest mining group, with plans for a £15 billion asset sale and dividend hike, and bracing talk about the outlook for commodity prices, which the company insisted would remain ‘well above their long-term trend during 2008’. Rumours that US group Blackstone was preparing a counter bid for Rio added further spice to proceedings.

Plans for a subsidiary of Shell to take a controlling stake in developing battle-scarred Regal Petroleum’s Ukrainian gas and condensate assets foundered when Regal chief executive officer Neil Ritson quit suddenly, to be replaced by ex-Shell man David Greer. Frank Timis, Regal’s controversial former boss and continuing significant shareholder, is understood to have disliked the proposed deal.

Huveaux disappoints
At the lower end of the market, Letts study guides publisher Huveaux ended bid talks with all potential suitors, having failed to agree a take-out price with buy-out firm August Equity. Its shares slipped back 2.5p to a new 52-week low of 24p, down from a 52-week peak of 53.75p, valuing the business at £36.5 million.

It was a very different story over at ITM, the fuel cell developer. It buoyed investors with news it is to work with the US Navy’s research department to help power unmanned submarines.

Shares in the group, which in November announced a deal with Boeing to design a refuelling station for unmanned aircraft, have vacillated between 100p and 150p over the course of the year and finished 6p higher at 130p.

Leslie Copeland is editor of Growth Company Investor, the UK’s leading magazine for AIM and small-cap analysis