Mon, Aug 13, 2007 - Page 12 News List

Banks able to weather turmoil: analysts

RUNNING SCARED Investors are selling financial sector shares and falling back on more secure investments such as bonds, which has resulted in liquidity concerns


Banks worldwide have hit tough times with volatile share prices and investment funds under pressure from US home loan losses, but analysts say they are strong enough to weather the turmoil.

"We expect more challenging times ahead," the Standard and Poor's rating agency said on Friday.

However, "European banks' exposure related to subprime loans in the United States and the current market volatility should not lead to a significant deterioration" in their financial stability, it said in a comment in French.

In Taiwan, 16 local banks have NT$40.4 billion (US$1.23 billion) invested in securities linked to subprime home loans in the US and face losses of NT$1.2 billion, the Financial Supervisory Commission said on Friday. On the same day, the central bank said the nation's financial markets are stable and there is no shortage of liquidity.

"There is no systemic crisis," said Cyril Regnat, a bond strategist at Natixis. But it is "reasonable that banks worldwide see their profits fall this year" while debt purchases, a lucrative practice for banks, could fall as well. Losses are also possible in the building credit market.

The US bank Bear Stearns, Germany's IKB, France's Natixis and Australia's Macquarie have been affected. Britain's HSBC said it was reaching a period of uncertainty, though it has not announced any losses. Taiwan's Mega Financial Holding Co (兆豐金控) said it expected to sustain a loss of up to NT$250 million at worst in light of its exposure to subprime loans.

On Thursday, an announcement by BNP Paribas that it was suspending three of its funds exposed to US high-risk property loans sparked further turmoil in world stock markets. The damage continued on Friday.

No large bank, however, seemed threatened by bankruptcy or insolvency.

"The subprime mortgage market represents only 13 percent of outstanding home credit" in the US and "American banks have comfortable shareholders' equity," said Laurent Quignon, a banking and economics specialist at BNP Paribas.

Olivier Gasnier, an economist at Societe Generale, said that the financial sector could strongly rebound on the stock market "if in a few days we realize that there is no relationship between the losses on the markets and the banks' situation."

Problems lie elsewhere. Banks have often dealt with subprime debt by issuing risky bonds at high returns.

Many have been underwritten by hedge funds. Uncertainties remain on the exposure of those speculative funds, which weigh heavily on the financial markets.

Those unknowns have made investors extremely nervous. They are massively selling financial sector shares and falling back on more secure investments such as bonds.

That has resulted in liquidity concerns and a rise in financing costs for banks.

In Taiwan, Mega Financial, the nation's second-largest financial company by assets, declined 2.7 percent to NT$19.50 on Friday. Cathay Financial Holding Co (國泰金控), which owns the country's biggest insurer, slumped 5 percent to NT$77.50.

The Financial Supervisory Commission reassured the public of a limited fallout from the US subprime woes.

"Most of the banks are exposed to subprime loans through securitized financial products," the financial regulator said in a statement. "There haven't been any defaults, so the potential losses would be limited."

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