Thursday, 17 January 2008

Those losses just keep piling up

Take a look at this list:

Merrill Lynch: $22.1bn
Citigroup: $18bn
UBS: $13.5bn
Morgan Stanley $9.4bn
HSBC: $3.4bn
Bear Stearns: $3.2bn
Deutsche Bank: $3.2bn
Bank of America: $3bn
Barclays: $2.6bn
Royal Bank of Scotland: $2.6bn
Freddie Mac: $2bn
JP Morgan Chase: $3.2bn
Credit Suisse: $1bn
Wachovia: $1.1bn
IKB: $2.6bn
Paribas: $439m

Over the last ten years, banks across Europe and North America have run up mountain of losses, stupidly lending to households who now can not pay the debts back. This list is just a selection; there are literally hundreds of financial institutions now their booking sub-prime losses.

The scary thing is that the US banks are ahead of the curve. The housing market over there began collapsing two years ago. The losses are on the balance sheets of the banks, and the write-offs have started.

In Europe, we are still listening to the prelude. The fat lady hasn't even walked onto the stage to start act one. Over here, our housing sector losses are still hidden, tucked away, waiting to jump out and frighten the living daylights out of us. The same is true over in Ireland. It is the same in Spain. As those Eastern European hotspots; Bulgaria, Croatia and Albania - oh boy, dark days will soon be upon us.

What can be done? The first thing to do is to stop pouring money at the property markets. Banks should severely tighten credit standards. There is no point making a bad situation worse. Second, separate the seriously ill from the corpses. Save what you can, bury what is dead. For example, start with Northern Rock.

Closing down a bank is actually very easy. Close the offices at 5pm. Send in some accountants as soon as you have sent the staff home with their photocopied good-bye letter from the director of human resources. Then add up the assets and subtract the liabilities. See what you have left. Sell the assets, pay off as much of the liabilities as you can with the proceeds.

Then send the outstanding bill to a man down in Whitehall called Mr. Darling. Tell him to pay up by return of post. Bob's your uncle, its all over, and wait until the next bank drops dead, and start all over again.


oldftb said...

The only problem is when you add this lot up and convert it to sterling it doesn't sound as much!!

Anonymous said...

"Captain! I wouldn't worry about the iceberg looming up on the looks so small and our ship is unsinkable" - Titanic 1912

JR said...

Interesting post.

To me it seems like all the cities that had hyper-appreciation of real estate values from 2000 through 2005 are now really taking some major value declines.

Here in San Diego, I subscribe to: This San Diego real estate publishes a real tell-it-like-it-is blog. His 12-31-07 post Real Estate Market Predictions for San Diego in 2008 is a realistic idea about what this year will hold for not only San Diego, but, all the cities that had hyper-inflation.