IMF Estimates Loan Loss to Reach $1 T

123jump.com Staff
08 Apr, 2008
New York City

European markets were on the decline after the IMF report suggested that total losses related to U.S. riskly loans could reach $1 trillion. The report predicted dire consequences for banks and financial systems if financial regulators and banks do not act quickly. Banks and brokerage stocks across the region fell.

[R]10:00AM New York – European markets fell after credit market worries dragged stocks in the region. IMF estimate of $1 trillion related to U.S. loans put investors on the defensive.[/R]

European shares fell on Tuesday, after rising for three days in a row on persistent worries related to credit crisis. Latest quarterly report from IMF suggested that credit market losses could reach to $1 trillion.

Subprime Losses

The International Monetary Fund said on Tuesday that banks and governments should be prepared for rising losses related to credit markets and estimated that total losses can reach to $1 trillion.


The report noted, “The United States remains the epicenter, as the U.S. subprime market was the origin of weakened credit standards and was the first to experience the complications arising from the associated structured credit products.

But financial institutions in other countries have also been affected, reflecting the same overly benign global financial conditions and —to varying degrees —weaknesses in risk management systems and prudential supervision.

Industrialized countries with inflated house price levels relative to fundamentals or stretched corporate or household balance sheets are also at risk.”

The report also projected that losses on mortgages and mortgage-related securities could lead to aggregate losses of about $565 billion and if other potential losses are added, including loans and securities related to commercial real estate, consumer credit and corporations, the aggregate loss estimate rises to $945 billion.

UK House Prices Drop

A report released by HBOS has revealed that the U.K. house prices declined in March, a 16th year record low as the seizure in credit markets worldwide forced banks to pull mortgage offers.

In Britain, the average cost of a house declined 2.5% to 191,556 pounds down from February, according the HBOS, the U.K.''s biggest mortgage lender.

The report noted that U.K. home prices are still up 171% over the 10 years.

Movers

In Paris, France’s CAC 40 Index declined 1.1% or to 4,890.17 while Germany’s benchmark index declined 1.2% or 82.52 to 6.738.68.

BNP Paribas lost 1.4% to 69.24, reversing Monday’s gains of 2.4%.

Freight transporter, Clasquin was up 6.3% to 13.66 euros. The company reported that second-half operating income increased 21% to 2.3 million euros. In its outlook, Clasquin forecasted that operating profit for the current 2008 fiscal year would grow more than 50%.

Groupe Eurotunnel SA, the operator of rail tunnel that links France and England rose 4.6% to 11.81 euros. The company recorded an annual profit after a debt restructuring agreement cut financing costs and averted bankruptcy.

Societe General SA, France''s third-largest bank lost 2.9% to 66.99.

In Frankfurt, Deutsche Boerse, the operator of the Frankfurt bourse lost 7% or 7.27 euros to 97.19. The company said it processed 6.63 million domestic transactions in March, 21% lower compared from a year ago. It said international transactions declined 28% to 2.33 million the same period.

STMicroelectronic NV, the Europe''s largest semiconductor maker declined 3.3% to 7.11 euros.
Infineon declined 6.1% to 4.77 euros and Postbank dropped 4.5% to 58.20 and Deutsche Post lost1.2% to 20.37 euros.

Deutsche Lufthansa AG, Europe''s second-largest airline declined 2.1% to 17.37 euros and MTU Aero Engines Holdings AG lost 4.8% to 26.82 and Solon AG lost 6.1% to 48.90.

World markets

In Tokyo Nikkei 225 Index closed lower 199.80 or 1.49% to 13,250.43, in Hong Kong Hang Seng index decreased 267.07 or 1.09% closed to 24,311.69. In Australia ASX 200 index lower 53.50 or 0.95% to close 5,571.50. In Malaysia KL Composite index increased 4.64 or 0.38% closed to 1,225.71.

In South Korea Kospi Index decreased 18.85 or 1.06% to close at 1,754.71, in Thailand SET index closed higher 2.05 or 0.25% to 826.85 and Indonesia JSE Index edged decreased 37.03 or 1.62% to 2,249.77. Sensex index in India decreased 169.46 or 1.08% to 15,587.62.

In London FTSE 100 Index closed lower 24.60 or 0.41% to 5,990.20, in Paris CAC 40 Index decreased 31.91 or 0.65% to close at 4,912.69 and in Frankfurt DAX index lower 49.05 or 0.72% to close at 6,771.98. In Zurich trading SMI decreased 71.16 or 0.93% to close at 7,568.14.