Banks to require hefty additional funds, besides recapitalisation
Saturday, 18 October 2008
From Fazle Rashid
NEW YORK, October 17: Two of America's banking giants Citigroup and Merrill Lynch anounced multibillion dollar losses yesterday, signalling further trouble is in store for the fast deteriorating US economy. The combined profits earned by the banks in recent years have evaporated.
America's nine largest banks, since the beginning of the economic meltdown in mid-2007, have written down the value of their troubled assests running into $323 billion, the New York Times (NYT) reported today.
With recession looming large on the horizon, the pain is not likely to end anytime soon.
There are large delinquents in auto, credit card and commercial real estates' loans. The trouble started with home mortgages. For every dollar the banks earned during the peak periods they have wiped out $1.06.
Government's recapitalisation notwithstanding, the banking sector would require an additional infusion of $275 billion to remain afloat.
The question now being asked is whether the banks will promptly deploy their new found capital to unlock the credit squeeze or they will hoard the money to protect themselves. The government bailout plan did not require the banks to specify how and when they will use the money. There is no statutory requirements. It will take weeks if not months for the government to prove that it will invest money wisely. Treasury officials say they have not made any decision on what criteria will be used to decide which banks are allowed into the programme.
America's nine largest banks -- Citigroup, Merrill Lynch,Bank of America,Morgan Stanley, JP Morgan Chase, Goldman Sachs, Wells Fargo, Washington Mutual and Wachovia together reaped a profit of $305 billion in -- their hay days from 2004 to mid-2007. The downhill slide began from July 2007 and the profits have been wiped out. Three of the nine banks -- Merrill Lynch, Washington Mutual and Wachovia -- are in the process of mergers with others in the group.
In Switzerland, the financial giant UBS will accept a government loan of $5.36 billion. The bank was strongly rebuked by the government for failing to maintain adequate risk control. Credit Suisse, the other banking powerhouse rebuffed an offer of direct government help and announced it would raise $8.75 billion of its own. It would take money from Qatar Investment Authority to shore up its capital base.
In the midst of growing trouble in the financial markets came the good news of a fall in the price of oil. The oil prices have tumbled about $40 a barrel in just three weeks. The price of oil was $145 a barrel in July. The oil cartel OPEC will sit in an amergency meeting next week to address the falling price of oil.
There is sharp differences among the members. Venezuela and Iran have made it clear that they would not allow the price to drop below $100 a barrel.
The International Monetary Fund (IMF) is on an emergency footing and will do everything in its power to support vulnerable emerging economies caught up in the global financial crisis, Fund chief said. The IMF is prepared to work with the Asian countries who are averse to IMF involvement to work out a plan to offset the damages inflicted by the meltdown.
'I like the words Bretton Woods 11,' the IMF chief said and added" "But we have to have something behind the words." Iceland, Ukraine and Hungary have sought emergency assistance from the IMF to stall their economis from collapsing.
The World Bank president, Robert Zoellick came up with the plan of Facebook of a global economic government, a fluid interconnected network of international institutions with a flexible steering group of lending countries. It was in response to European leaders like Gordon Browne, Sarkozy and Angela Merkel demanding a fundamental review of global economic government in the light of the credit crisis.
The problem with the World Bank and IMF is not just with the current architecture but that the world's lending countries have either ignored or misused the fund to further their own interests, the analysts charged.
NEW YORK, October 17: Two of America's banking giants Citigroup and Merrill Lynch anounced multibillion dollar losses yesterday, signalling further trouble is in store for the fast deteriorating US economy. The combined profits earned by the banks in recent years have evaporated.
America's nine largest banks, since the beginning of the economic meltdown in mid-2007, have written down the value of their troubled assests running into $323 billion, the New York Times (NYT) reported today.
With recession looming large on the horizon, the pain is not likely to end anytime soon.
There are large delinquents in auto, credit card and commercial real estates' loans. The trouble started with home mortgages. For every dollar the banks earned during the peak periods they have wiped out $1.06.
Government's recapitalisation notwithstanding, the banking sector would require an additional infusion of $275 billion to remain afloat.
The question now being asked is whether the banks will promptly deploy their new found capital to unlock the credit squeeze or they will hoard the money to protect themselves. The government bailout plan did not require the banks to specify how and when they will use the money. There is no statutory requirements. It will take weeks if not months for the government to prove that it will invest money wisely. Treasury officials say they have not made any decision on what criteria will be used to decide which banks are allowed into the programme.
America's nine largest banks -- Citigroup, Merrill Lynch,Bank of America,Morgan Stanley, JP Morgan Chase, Goldman Sachs, Wells Fargo, Washington Mutual and Wachovia together reaped a profit of $305 billion in -- their hay days from 2004 to mid-2007. The downhill slide began from July 2007 and the profits have been wiped out. Three of the nine banks -- Merrill Lynch, Washington Mutual and Wachovia -- are in the process of mergers with others in the group.
In Switzerland, the financial giant UBS will accept a government loan of $5.36 billion. The bank was strongly rebuked by the government for failing to maintain adequate risk control. Credit Suisse, the other banking powerhouse rebuffed an offer of direct government help and announced it would raise $8.75 billion of its own. It would take money from Qatar Investment Authority to shore up its capital base.
In the midst of growing trouble in the financial markets came the good news of a fall in the price of oil. The oil prices have tumbled about $40 a barrel in just three weeks. The price of oil was $145 a barrel in July. The oil cartel OPEC will sit in an amergency meeting next week to address the falling price of oil.
There is sharp differences among the members. Venezuela and Iran have made it clear that they would not allow the price to drop below $100 a barrel.
The International Monetary Fund (IMF) is on an emergency footing and will do everything in its power to support vulnerable emerging economies caught up in the global financial crisis, Fund chief said. The IMF is prepared to work with the Asian countries who are averse to IMF involvement to work out a plan to offset the damages inflicted by the meltdown.
'I like the words Bretton Woods 11,' the IMF chief said and added" "But we have to have something behind the words." Iceland, Ukraine and Hungary have sought emergency assistance from the IMF to stall their economis from collapsing.
The World Bank president, Robert Zoellick came up with the plan of Facebook of a global economic government, a fluid interconnected network of international institutions with a flexible steering group of lending countries. It was in response to European leaders like Gordon Browne, Sarkozy and Angela Merkel demanding a fundamental review of global economic government in the light of the credit crisis.
The problem with the World Bank and IMF is not just with the current architecture but that the world's lending countries have either ignored or misused the fund to further their own interests, the analysts charged.