It's your own fault

Private banks took responsibility for the crisis

The largest private financial institutions, recognizing that responsibility for the crisis lies with them, decided to restore order in the markets themselves . On Sunday, the Washington-based Institute of International Finance (IIF) announced an action plan to overcome the crisis. IMF is an analytical center whose shareholders are more than 375 private financial institutions. Deutsche Bank CEO Josef Ackermann, who chairs the institute's board of directors, said at IMF's annual shareholders' meeting on Sunday: "We take responsibility." And his deputy on the board, Citibank President William Rhodes, added: “No one at this table points to regulators or rating agencies (as the culprits of the crisis. - Ed. ). This is our responsibility."

These admissions came shortly after the meeting of the “financial seven” and the annual meeting of IMF shareholders, where the main topic was the situation in the financial markets. The crisis of confidence in the sector has led the IMF to downgrade its forecast for global economic growth and highlight uncertainty about how deep the roots lie. The Seven, in turn, asked the Financial Stability Forum, created by national regulators, to study the causes of turbulence in such areas as risk management, accounting and evaluation of financial derivatives, the methodology of rating agencies, as well as the principles of supervision of off-balance sheet assets.

The IMF's plan is to clearly define standards for risk management, issuance and evaluation of loans, and to address the problem of risks concentrated on the balance sheet of financial institutions.

It is obvious that the IMF acts in opposition to the plans of the “seven” and proceeds from the principle “if you cannot prevent the process, lead it yourself.” Admitting one's own responsibility looks noble, and that's all. Moreover, in fairness and contrary to the words of Mr. Rhodes, this responsibility should be borne equally by both regulators and rating agencies. If banks got carried away with technologies for redistributing risks through complex financial instruments and weakened risk assessment, then rating agencies got involved in this game, and regulators, it seems, simply slept through the changes in the markets. “Every day, Americans find several letters in their mail from banks offering to take out a loan. Moreover, to do this, you just need to activate the account, the details of which are already in the envelope. What kind of credit risk assessment can we talk about here? - one of the experts participating in the annual meeting of the IMF is indignant in a conversation with Vremya Novostei correspondents. - Banks in America almost forcibly issued mortgages to the poorest segments of the population. Of course, they immediately securitized these loans, selling the risks to the market. But why did a derivative security receive the highest rating from rating agencies? Now we only know that these risks have been redistributed, but we do not know when and how they will make themselves felt. Perhaps what is happening now will seem like minor troubles later.”

Banks, meanwhile, fear that they will face new problems in the coming months. According to market participants, financial statements for the third and fourth quarters will be disappointing. As a result, banks are already forced to increase the amount of reserves to cover possible losses not only on mortgage loans, but also on car loans and credit cards.

The head of the German Commerzbank, Klaus-Peter Müller, admitted yesterday that the bank he heads was affected to a greater extent than expected by the crisis in the US mortgage market. “The previously announced write-offs of €80 million reflect the situation at the beginning of June. There are not enough of them now,” he said, noting that banks in Germany may not have accurate information about the consequences of the American subprime crisis until the spring. “There will be two more waves: in November, when banks publish their results for the third quarter, and also in February-March, when they publish their annual data. At this point we will finally have clarity,” Mueller said.

German banks so far have only a “rough forecast”, and Commerzbank is no exception in this case. “We need to trace the route of each loan tranche,” Mr. Mueller said, “and in the case of real estate loans, determine whether the affected homes were in areas with high unemployment rates.” By the end of the year, the head of Commerzbank is confident, his financial institution will have information about real risks: “From 30 to 40 bank employees comb through 1,000 tranches, and this despite the fact that with the estimated possible risk of 1.2 billion euros today, we have not yet in the worst possible situation."

American banks continue to reap the benefits of the mortgage crisis. As the Financial Times notes, US financial institutions increased reserves to cover possible loan losses by at least $6 billion in the second quarter alone. This indicates that companies do not believe in timely loan payments. Moreover, here we are talking not only about mortgages, but also about car loans and credit cards. “What started as problems in the consumer lending market for risky borrowers has long since spread beyond mortgage lending, and the situation is deteriorating much faster than many expected,” said Deutsche Bank analyst Michael Mayo. According to Punk Ziegel analyst Richard Bove, auto lending is definitely the next area to be wary of.

As for mortgages itself, as US Treasury Secretary Henry Paulson said, a specially created fund for financial support of securities backed by mortgage loans will begin operating before the end of the year. According to The Wall Street Journal, a number of banks and companies have already expressed their willingness to invest more than $60 billion in it. The new fund is intended to reduce the risk that dozens of bank-linked funds will be forced to dump mortgage-backed securities and other securities due to worsening conditions. assets, and this will lead to a collapse in the prices of these liabilities. Former Fed Chairman Alan Greenspan, in an article on the Emerging Markets website, said that the creation of the fund could have negative psychological consequences for market participants: they may come to the conclusion that the market is supported by an artificial non-market force. However, the policies of recent years inevitably had to lead to some negative results, and perhaps the psychological consequences are not the worst thing.

Andrey DENISOV, Washington, Yuri ShPAKOV, Berlin, Ivan GORDEEV