Note: Many banks report earnings
in the coming week.
US banks Citigroup and Merrill Lynch reveal fresh $15bn
loss
CITIGROUP and Merrill Lynch will heap further pain on Wall Street this week
as they reveal additional sub-prime write-downs totalling $15 billion (£7.6
billion) or more.
In another sign of the intense pressure on leading banks, Deutsche Bank is
attempting to offload some of its ?35 billion (£28 billion) of toxic debt to a
consortium of private-equity firms.
Huge exposure to American mortgages is expected to result in Citi taking a
$10 billion hit to its accounts, dragging the bank to a first-quarter loss of
almost $3 billion. Some analysts believe Citi?s write-downs could stretch to as
much as $12 billion.
Merrill will suffer $5 billion of write-downs, analysts say, which would
push the bank $2.7 billion into the red.
It is expected to knock a further 20% from the value of its sub-prime
holdings, in spite of the fact that it announced $18 billion of write-downs only
three months ago.
The new rash of Wall Street losses and write-downs come in addition to the
billions that have already been recorded.
The world?s biggest banks have suffered losses and write-downs totalling
almost $250 billion since the beginning of 2007, according to analysts. Last
week the IMF shocked markets by saying that global losses from the credit crisis
could rise to $945 billion.
JP Morgan is expected to offer the only glimmer of hope from this week?s
results, posting a small profit, in spite of huge exposures to leveraged loans.
Some of the world?s biggest banks are beginning to work on new solutions to
relieve tension in the financial markets.
Deutsche Bank is understood to be talking to a number of private-equity
funds about a disposal of some of its backlog of loans to venture-capital firms.
The value of leveraged loans sitting on Deutsche?s balance sheet is greater
than its shareholder equity. The bank is planning to sell on the loans to the
private-equity funds at a loss to free up its balance sheet, according to market
sources.
The plan mirrors a similar move by Citi to sell $12 billion of its
leveraged-loan portfolio to private-equity firms including Blackstone, Apollo
and Texas Pacific Group.
The Citi deal is hoping to close the deal in time for this week?s results.
It is one of a number of significant moves by Vikram Pandit, Citi?s new chief
executive.
But the sale could be hampered by problems with the planned inclusion of
loans related to EMI, the music business. Citi bankrolled its buyout last year
by Terra Firma Capital Partners, and still holds about $5 billion of EMI debt.
It was reported yesterday that Citi had been forced to remove some of these
loans from the sale after buyers complained they did not have sufficient
financial information on EMI.
Citi announced plans to sell its Diners Club credit-cards business to
Discover last week, and is also considering a sale of its German retail-banking
operations.
City insiders believe job losses are inevitable. Pandit is thought to be
considering a radical reshaping of the bank?s equity research organisation.
Insiders say that it may be slimmed down to focus on its top 300 clients, rather
than providing a wider service to investors.
Some banks are looking to use the crisis to steal a march on their
competitors. HSBC last week revealed its intention to use the tightening credit
conditions as an opportunity to boost its 3% share of the UK mortgage market.
Abbey, which is owned by Spain?s Santander, has written close to 20% of all
the mortgages handed out in Britain in the first quarter, according to sources
close to the company. The bank is funding its expansion in the market by
attracting more money from savers, analysts say.
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