Translated material
New year brings new debts
European banks continue to lose billions
While US financial authorities are trying to reassure the world community that they are doing everything to prevent a recession , the largest European banks continue to lose billions of dollars due to the mortgage crisis. On Friday it became known that the fourth largest bank in France, Natixis, wrote off 0.8 billion euros ($1.2 billion) due to investments in subprime securities. Another major European bank, Swiss UBS, announced the presence in its accounts of risky bonds tied to the mortgage market in the amount of $26.6 billion. Market participants believe that UBS may now have to write off $11-18 billion. These The news led to another drop in the value of shares of financial companies in Europe.UBS has already suffered from the mortgage crisis: at the end of 2007, the Swiss wrote off 4.4 billion francs ($4 billion) due to investments in American mortgages. This, by the way, is the first unprofitable year in the bank’s ten-year history (in 1998, UBS was formed through the merger of Union Bank of Switzerland and Swiss Bank Corporation). On Friday it became known that in 2008 the bank will apparently have to write off debts again. UBS owns Alt-A bonds, which are issued against real estate mortgage loans to lenders who have never taken out a mortgage before. These securities are also considered very risky, although less dangerous than subprime securities. On this news, shares of the Swiss bank fell by 3.8%.
The shares of the French bank Natixis, which announced the write-off of losses in the amount of 1 billion euros in 2007, including 817 million euros on securities secured by American subprime mortgages, depreciated significantly more - by 17%. Because of these losses, the bank's net profit for 2007, according to preliminary data, fell by more than half - to 1 billion euros.
The US also continues to count losses, trying to reduce their volume. For example, the American bank Citigroup temporarily prohibited the return of funds to investors after they tried to withdraw 30% of the fund's assets. CSO Partners, which invests in corporate debt, has assets of $0.5 billion.
Citigroup's other hedge funds are also struggling. Thus, the volume of Falcon Strategies assets decreased by 30% last year. The reason for this was the unfulfilled expectations of its managers placed on the credit markets. The Old Lane Partners fund performed slightly better, losing only 1.8% of its assets.
There are no prerequisites for banks to finally begin to recover from the mortgage crisis. The situation continues to be very unfavorable for financial institutions, and news from the US remains not very encouraging.
Former Federal Reserve Chairman Alan Greenspan recently said that the US economy is on the verge of recession, as falling home prices negatively affect consumer spending, Bloomberg reports. In his opinion, the chances of a contraction in GDP are 50% or more. As you know, many analysts predict a contraction in the US economy. "U.S. growth is slowing now, but there are no signs of recession yet," Mr. Greenspan said. -- American business was in very good shape before the problems appeared. Otherwise, we would already be discussing how long and deep the recession will be. We haven’t reached that stage yet.” In his opinion, the crisis of risky mortgages could have already driven the US into recession if US companies were not in excellent condition as a result of several years of low key rates.
The current head of the Federal Reserve Ben Bernanke, also not yet recognizing the onset of a recession, nevertheless agrees with the increasing risks of a decline in economic growth. According to him, the regulator will adequately respond to the decrease in the availability of loans. Market participants interpreted his words as a readiness to further reduce interest rates. As you know, the meeting at which the Fed may decide on further easing of monetary policy will take place on March 18.