Bad news from the banks, so why are shares soaring? Why Central London house prices aren’t immune to the crunch.Switzerland’s biggest bank, UBS, announced its sub-prime-related losses had doubled to $37bn yesterday, sending it into a quarterly loss for the second quarter in a row.

It has raised another $15bn or so in a rights issue to prop up its balance sheet, on top of $13bn already raised from Singaporean and Middle Eastern investors. The chairman, Marcel Ospel, stepped down.

Meanwhile, Lehman Brothers, which had been seen as potentially the next Bear Stearns, managed to raise $4bn to shore up its own finances.

Naturally, share prices on both sides of the Atlantic rocketed…

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Wall Street and the City are hoping that this little episode marks the beginning of the end for uncertainty over the financial system. Surely, after this latest write-off, UBS must have revealed the worst. And as for the $4bn fund-raising at Lehman – the group had originally only been looking for $3bn. Demand was so strong from institutions that it jacked up its sale by another whole billion dollars.

So the hope is that we’re starting to put the worst behind us, and soon we can all get back to business as usual.

However, there are a lot more things to worry about. Even if the latest write-downs represent a beginning to the clear-out, we won’t see a return to the days of easy credit for a long, long time. Lehman Brothers’ rights issue was over-subscribed, but it’s not that surprising, given the terms on offer. The convertible preference shares pay a 7.25% dividend yield.

But as Adam Compton at RCM Investors told The Times: “If there is a question that a bank may need funds in the future, it is better to raise it sooner rather than later, because funding is only going to get more expensive.”

Meanwhile, the problems in the financial world have spread far beyond the City and are now firmly entrenched in the ‘real’ economy. Even in the days before credit derivatives became so widespread, a worsening economic environment was always bad news for banks. With so many other dodgy debt instruments linked to corporate defaults and credit card debt out there, we can expect to see more parcels of toxic debt revealing themselves as conditions worsen.

On employment, for example, there’s the small question of what will happen to the 9,000 staff working in UBS’s London offices, as well as all those other City staff who suddenly face an uncertain future.

Why Central London house prices aren’t immune to the crunch

This is already having an impact on the Central London property market. Remember all those super-prime houses that property bulls kept saying could never fall in price? And all that stuff about oligarchs and wealthy oil sheikhs keeping London afloat, because it’s such a great place to live?

Well, Knight Frank has just reported that sales of Central London homes worth between £1m and £5m fell by 20% in the first quarter. Apparently, houses in the £3m to £5m bracket were the worst affected.

Sure, it’s City employees rather than wealthy Russians who are being forced out of the market by employment fears or because their bonuses are drying up. But most rich people didn’t get rich by being stupid. The odd million pounds here or there might be peanuts to an oligarch, but he’s still not going to pay £5m or £10m for something he reckons he’ll be able to get 10% or 20% cheaper in a couple of year’s time. Nobody likes losing money, particularly when the outlook for the global economy is so uncertain.

And how attractive will London look to party-loving foreign billionaires in the middle of a recession?

As for the rest of us, well, house prices for mere mortals are already in the doldrums, and now we hear that First Direct has just completely pulled out of offering mortgages to new customers. The bank has been swamped with demand for its products, including its 4.95% two-year fixed mortgage deal, seen as one of the most competitive currently on the market.

The HSBC-owned bank says the withdrawal is a “temporary measure.” Chief executive Chris Pilling, told The Times: “Rather than increase interest rates dramatically to discourage new applications, we’ve decided to temporarily withdraw from offering mortgages to non-customers until we’ve cleared the backlog.”

It’s perhaps a more honest way of doing things, but it makes for some scary headlines. “Bank pulls out of mortgage market” is the front page of The Telegraph today. It might be the first, but it certainly won’t be the last.