Open

Coming up

Don't miss

Replay


LATEST SHOWS

MEDIAWATCH

No strategy and a beige suit

Read more

THE WORLD THIS WEEK

The World This Week - 29 August 2014 (part 2)

Read more

THE WORLD THIS WEEK

The World This Week - 29 August 2014

Read more

ENCORE!

Alain Choquette: A Hilarious Magician in Paris

Read more

FOCUS

France welcomes Iraqi Christian refugees

Read more

FRANCE IN FOCUS

Emmanuel Macron: A new economy minister with a pro-business agenda

Read more

THE OBSERVERS

More of this year's best Observers stories

Read more

#TECH 24

Changing the world, one video game at a time

Read more

IN THE PAPERS

Socialist Party summer conference kicks off in explosive atmosphere

Read more

  • Exclusive: Fabius warns of further sanctions against Russia

    Read more

  • Experimental Ebola drug ‘ZMapp’ heals all monkeys in study

    Read more

  • IMF stands behind Lagarde amid French corruption probe

    Read more

  • Ukraine to relaunch NATO membership bid

    Read more

  • Suriname leader’s son pleads guilty to courting Hezbollah

    Read more

  • British killer escapes from French psychiatric hospital

    Read more

  • Chelsea’s Torres set for AC Milan switch

    Read more

  • Police hunt for British boy with brain tumour taken to France

    Read more

  • France shines in IMF list of world’s promising economists

    Read more

  • Mapping Ukraine: Canada and Russia in ‘tweet for tat’ row

    Read more

  • First case of Ebola confirmed in Senegal

    Read more

  • Obama has 'no strategy yet' on potential Syria strikes

    Read more

  • Netflix to woo French with ‘House of Cards’ set in Marseille

    Read more

  • French businesses ‘hoping for a new Thatcher’

    Read more

  • Syrian refugees surpass 3 million, UN says

    Read more

  • West backs Ukrainian claims of Russian incursion

    Read more

  • Libyan PM resigns as Islamists set up rival administration

    Read more

  • UN says 43 peacekeepers captured in Golan Heights

    Read more

  • The deleted tweets of Manuel Valls

    Read more

  • Peru seizes record 6.5 tonnes of Europe-bound cocaine

    Read more

No end of the credit crisis in sight

Latest update : 2008-03-27

Top central bankers are pessimistic on a quick ending for the the credit crisis that has shaken financial markets since summer 2007. The tighter financing conditions have also hit takeover and merger activity.

LONDON — Top central bankers warned on Wednesday there was no end in sight to the global credit crunch as the German giant Deutsche Bank said the crisis threatened its profit target for this year.

The credit malaise showed little let-up in the United States as well after bond insurer FGIC said it has stopped writing new business to preserve its capital.

European Central Bank President Jean-Claude Trichet said the turbulence that has gripped financial markets since last summer would probably endure until the U.S. housing market perked up.

"Until conditions in the US housing markets show signs of improvement, the possibility of continuing tensions in structured credit markets cannot be excluded," Trichet told a European Parliament committee.

"Large euro-area banks are likely to face pressure on their revenues on account of lower activity levels in the structured credit markets as well as from a general retrenchment from risk-taking across business lines," he said.

US Treasury Secretary Henry Paulson said housing prices needed to be allowed to continue to drop for now.

"The sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilise, more buyers return to the housing market, and housing will again contribute to economic growth," he told the US Chamber of Commerce.

Europe has not escaped the credit crunch, which first bit in August when banks worldwide clammed up on lending to each other as it dawned on them that they did not know which were dangerously exposed to the US subprime mortgage meltdown.

Securities based on home loans to Americans ill-equipped to pay them back have cost banks hundreds of billions of dollars in write-offs, with more expected to come, and pushed US investment bank Bear Stearns to the brink of collapse.

Backing Trichet's predictions, Deutsche Bank said asset write-downs and disruption to revenues stemming from the credit turmoil could put at risk its profit goal for this year of 8.4 billion euros (13.2 billion US dollars).

"The tone this morning is noticeably more bearish, and indeed Deutsche has effectively given a [very lightly veiled] profit warning for 2008 on further fair value write-downs," RBS credit analysts said in a note to clients.

Money market rates continued to show banks' marked reluctance to lend to each other despite periodic injections of massive liquidity by the world's major central banks.

The interbank cost of borrowing three-month sterling edged up for the 12th session in a row to 6%, its highest since late December, while three-month euro Libor rates rose to 4.72063%, their highest level this year.

Gloomy king

Bank of England Governor Mervyn King was as downbeat as Trichet, saying the credit crunch had entered a new phase.

"The financial crisis has moved into a new and difficult phase. Across the world, confidence in financial markets is fragile," King told a parliamentary committee.

Despite apocalyptic warnings of a new "Great Depression", some confidence has returned on the back of sharp US rate cuts, central banks' efforts to prime money markets with as much liquidity as required and the orchestration of a takeover of Bear Stearns.

But economic data continues to paint a mixed picture — US home sales rose for the first time in seven months in February but home prices tumbled 3% year-on-year in January.

The bond insurer FGIC Corp said it has stopped writing new business to preserve its capital after its exposure to mortgage losses exceeded legal limits. The parent of insurer Financial Guaranty Insurance Co. said it may also raise loss reserves due to litigation related to stricken German lender IKB.

Damage has spread far and wide, hitting takeover and merger activity, too, via tighter financing conditions.

The 20 billion dollar leveraged buyout of US radio station operator Clear Channel Communications Inc. is in jeopardy, with banks increasingly reluctant to provide financing, a source familiar with the situation said on Tuesday.

If the deal falls apart, it would be the latest in a series of leveraged buyouts to fail since the credit crisis began.

In the US junk market, Abitibi Consolidated Co, a unit of Abitibi Bowater Inc., priced 413 million dollors of high-yield notes, in what was just the second deal to be completed in that market this month. Investor appetite for riskier bonds had vanished amid mounting fallout from the global credit crisis, including the near collapse of Bear Stearns in a liquidity crisis over a week ago.

In Europe, the corporate picture brightened.

Corporate morale in Germany posted a surprising rise in March to its highest level in seven months, the Ifo research institute's monthly poll of around 7,000 firms showed on Wednesday, while French business sentiment also rose unexpectedly, reaching its highest level so far this year.

Date created : 2008-03-27

COMMENT(S)