The worst is yet to come: Financial Crisis Part II?

Closed Thread
  1. #1

    Join Date
    Sep 2008
    Location
    hong kong shatin
    Posts
    84

    The worst is yet to come: Financial Crisis Part II?

    European banks: $283B more in writedowns

    FRANKFURT (Reuters) -- Euro-zone banks will probably need to write down another $283 billion this year and next on bad loans and securities, the European Central Bank said on Monday. The ECB estimated bank writedowns due to securities -- or toxic assets -- would total around $218 billion from the start of the financial turmoil to the end of 2010, while bad loans would account for another $431 billion -- a total of $649 billion, with an estimated $366 billion already announced. The figures were published in the ECB's latest Financial Stability Review, which concluded that risks to the financial sector had increased in the last six months amidst a deterioration in the economic environment which is putting pressure on the bottom line of companies and households.

    "The contraction of economic activity and the diminished growth prospects have resulted in a further erosion of the market values of a broad range of assets," the report said. "Connected with this, there has been a significant increase in the range of estimates of potential future writedowns and losses that banks will have to absorb before the credit cycle reaches a trough." The ECB's estimate of $649 billion for the whole period contrasts with a figure of $904 billion from the International Monetary Fund in April.

    The ECB said the calculations were surrounded by a high degree of uncertainty stemming from the economic and market outlook, accounting rules allowing banks to delay reporting writedowns and the very uncertain outlook for bank profits. "Against this background, write-off rates could increase by more than currently anticipated," the ECB said. However, ECB Vice-President Lucas Papademos said most big euro area banks "appear to be well-capitalized enough to withstand downside scenarios."

    The report outlined a wide range of risks and dangers for the financial sector in the 16-nation region, ranging from the financial situation of firms and households to continued volatility on markets. "Both policymakers and market participants will have to be very alert in the period ahead. There is no room for complacency," ECB Vice-President Lucas Papademos told a news conference. Property prices could be expected to fall further, in some countries at least, and big banks and insurance firms remained vulnerable to a further erosion of the capital base and a loss of investor confidence.

    Worse than expected?

    The euro area economic downturn could be worse than currently expected and there were increasing signs of a negative feedback loop between the real economy and the financial sector -- although there were also some positives. "Following a weak start in 2009, there have recently been increasing signs from survey data -- both within and outside the euro area -- suggesting that the pace of deterioration in activity is moderating and that consumer and business sentiment is improving, although still remaining at low levels," the report said.

    The ECB said the risk of deflation was limited and central bank actions in cutting interest rates and lending banks unlimited funds had helped reduce money market spreads, although these were still elevated for longer maturities. Without commenting directly on the outlook for official interest rates - now at a record low 1% -- the ECB noted households were in a better position to repay debt than earlier. "The interest rate risk faced by households has declined somewhat since (December 2008), and is expected to remain subdued looking forward," it said.

    The ECB said the outlook for euro zone government bond yields was surrounded by persistent uncertainty regarding macro-financial developments. "Upward risks for yields could be seen if flight-to-safety flows unwind further or if bond markets have difficulty in absorbing the increased issuance needs of euro area governments," the report said.

    As part of its measures to stimulate the eurozone economy, the ECB has been offering unlimited liquidity to banks, and will shortly launch longer-term refinancing operations. However, a debate has begun amongst policymakers about when such extraordinary policy measures need to be unwound. "The current ample liquidity provided by the ECB will not remain in place (forever)," Papademos said. Asked about the ECB's 12-month refi operations which will begin next week, Papademos said he would wait to see the market's reaction. "Then we will see what demand is from institutions ... at this point I will not speculate."

  2. #2

    Join Date
    Sep 2008
    Location
    hong kong shatin
    Posts
    84

    In my line of work, we have always look at business loan volume/quantum as a leading indicator. Business loans always turn up before the economy as companies grow their balance sheets in anticipation of good things to come.

    And in the US:
    Big banks still not lending

    NEW YORK (CNNMoney.com) -- Lending at the nation's top banks slowed in April, according to a government report published Monday, driven in part by continued deterioration in the U.S. economy. The dollar amount of new loans issued by the 21 biggest recipients of taxpayer funds under the government's Troubled Assets Relief Program, or TARP, fell 7% to $273 billion from nearly $295 billion during the month of March.

    Regulators attributed part of the decline to lower demand for new commercial and industrial loans, which fell nearly 29% during the month as U.S. businesses broadly avoided acquisitions, building plants and buying inventory. Weakness was also notable across a wide variety of consumer loan categories, including first mortgages and credit cards. Of the 21 banks that took part in the survey, 15 reported a decline in loan originations, according to the Treasury Department.


  3. #3

    Join Date
    Oct 2005
    Posts
    327

    A lot of the speculation in HK right now, from stock market to real estate, is coming from insanely BAD loans issued to mainlanders. Just wait until the loans are called. There is no sound economics right now, the worse is yet to come.

    http://www.geoexpat.com/forum/post379677-18.html


  4. #4

    Join Date
    May 2007
    Posts
    1,006

    guess everyone has to hang on tight until this is over...


    Last edited by Star Gazer; 18-06-2009 at 09:38 PM.

  5. #5

    Join Date
    Sep 2008
    Location
    hong kong shatin
    Posts
    84
    Quote Originally Posted by Star Gazer:
    guess everyone has to hang on tight until this is over...

    i don't think the cat can hold on any longer from the looks of it...

    p.s. where is this pic taken, just curious...
    Last edited by =XTR=M=; 23-06-2009 at 12:51 PM.

  6. #6

    Join Date
    Feb 2009
    Location
    usa
    Posts
    45

    I am in the USA right now and no end in sight as far as recession goes,what is a recovery when unemployment rate tops 10%?
    People are not eating out,they prefer to stay home and eat cheap,trading down from Kraft or Nabisco to store brand.
    Savings rate has gone up if this is a consolation to some,but as US consumers save and not spend,what does it do to the Asian economy?
    This is a good time to buy a house or a car?
    If you have an old gas guzzler and you trade it in for a new car,Uncle Sam will give you $4500,is that a deal or what?
    Same goes with buying a house/
    Hyundai just come out with a deal,buy a Hyundai and first year your gas will always be 1.80 a gallon!
    People are hoarding thing which will keep or appreciate in value,no,we are not talking about the Greenback,we are talking gold coin,gold bar,gold scrap,silver bars,silver ornaments and even old jade and ivory.
    Inflation or Deflation?Our govt keeps printing money,45 banks have failed so far,State of California said they are not looking for a bailout,they just want big brother to guarantee some debt they will be flooding the market next week!
    Madoff victims are on foodstamp and scourging the dumpster for food,some work 2 -3 jobs and we are seeing more family murders and suicides.
    The economy will eventually heal itself but in the meantime plenty of pain !


  7. #7

  8. #8

    Join Date
    May 2007
    Posts
    1,006
    Quote Originally Posted by =XTR=M=:
    i don't think the cat can hold on any longer from the looks of it...

    p.s. where is this pic taken, just curious...
    it was through email sent to me... me thinks its either malaysia or indonesia

  9. #9

    Join Date
    Mar 2009
    Location
    Hong Kong
    Posts
    2,260

    i saw 2 caucasians busking on the street in the last month...

    has the world really come to this?!!?