German Banks Face Further Big Losses

[FarCenter]

Source: Der Spiegel

Germany's top 20 banks still have around 300 billion euros of toxic securities on their books and have written off only a quarter of that, according to an official survey, SPIEGEL reports. That means they face further big losses.

German banks face further losses totalling billions of euros because they have only written off a fraction of their non-performing securities linked to American mortgages and student loans, according to a survey of 20 major German banks conducted by the German central bank and banking watchdog BaFin.

All the country's top commercial banks and the publicly owned regional banks known as Landesbanken took part in the survey which revealed that the banks hold so-called "toxic" securities totalling just under €300 billion ($398 billion), of which only a quarter has been written off.

They hold the remainder in their books at values that are now illusory. The government expects the banks to make further writedowns as a result, which should lead to further big losses for the banks. That in turn means that even more banks are likely to require government cash injections in the near future.

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Read more: http://www.spiegel.de/international/business/0,1518,602008,00.html

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German banks, and other foreign banks, are very unlikely to resume lending for US mortgages and student loans anytime soon.

Therfore, Washington's ability to reflate the housing market is very limited.

[Ghost Dog]

1. To which we may add: UK throws banks a lifeline

Monday January 19, 5:21 am ET LONDON (Reuters) - Britain launched a second bank rescue plan on Monday, one of the recipients, Royal Bank of Scotland, recorded the biggest loss in British corporate history and Japan said bad loans worldwide had further to climb.

The UK government will allow banks to insure themselves against losses on their riskiest assets. It will offer guarantees on their debt and set up a 50-billion-pound fund to buy up high-quality securities to get cash flowing freely again.

The government also gave the Bank of England a green light to increase money supply in the economy if it thought it necessary as interest rates, now at 1.5 percent, approach zero.

"It sounds very much like quantitative easing," said Alan Clarke, UK economist at BNP Paribas. "The government is giving the Bank of England an additional policy tool."

The state's stake in Royal Bank of Scotland will rise to 70 percent from 58 percent. RBS said it made a loss of up to 28 billion pounds ($41.3 billion) last year, the biggest loss in British corporate history, including a huge goodwill hit on its purchase of parts of ABN AMRO in 2007.

Bank of Japan Governor Masaaki Shirakawa said bad loans worldwide were likely to exceed current estimates.

"The current figure of $1.4 trillion to rise a little more," Shirakawa told a parliamentary committee.

/... http://biz.yahoo.com/rb/090119/business_us_financial.html?.v=13

More detail: http://uk.reuters.com/article/topNews/idUKTRE50I07K20090119?sp=true

Also:

QUANTITATIVE EASING

As part of the latest UK package, lenders would have to identify their riskiest assets which they could then insure with the government for a fee. They would still be liable for initial losses but could at least put in a ceiling, boosting confidence.

The Treasury said it would also extend the window for its Credit Guarantee Scheme -- which underwrites debt for banks that were recapitalised by the government -- to the end of this year.

It will also create a guarantee scheme for asset-backed securities starting in April that will build on the recommendations of a government-sponsored report late last year.

The Bank of England, meanwhile, will offer cash at its discount window for a year as well as just 30 days.

It will also get a new 50 billion pound facility to buy high -quality assets and most strikingly will be able to use this framework to boost the money supply, so called quantitative easing, in order to boost the economy as it runs out of room on interest rates.

/... http://uk.reuters.com/article/topNews/idUKTRE50I07K20090119?sp=true