B
Investment banks set to write off $130bn
By Lina Saigol in London
Published: October 6 2002 21:06 | Last Updated: October 6 2002 21:06
<http://news.ft.com/c.gif>
[image]
Investment banks in Europe and North America are set to write off more than $130bn in loan losses this year, the highest level ever recorded.
The magnitude of the losses is set to trigger another wave of job cuts across the industry, as investment banks struggle to reduce costs and boost income amid persistently weak equity markets and the worst deal drought for seven years.
Simon Harris, head of corporate and commercial banking at Oliver, Wyman, the global financial consultancy that carried out the research, said the losses also underlined the crisis facing integrated investment banks.
These are under fire from US regulators and lawmakers for questionable practices over stock offerings and potential conflicts of interests involving analysts' research.
Mr Harris said, during the credit boom of the 1990s, firms with commercial banking arms such as Citigroup and JP Morgan Chase aggressively used their ability to offer credit to forge relationships with big companies and win lucrative investment banking mandates.
"As recent banks' earnings announcements demonstrate, this strategy is now coming home to roost," he said.
Rising credit losses and falling trading revenues are cited for plans by JP Morgan Chase, the US investment bank, to cut up to 4,000 more jobs in its wholesale banking operations.
Investors have been concerned about JP Morgan's involvement in the collapse of Enron and its susceptibility to the rising tide of problem corporate loans.
Last month, it said credit losses would reach $1.4bn in the third quarter, up from $302m in the previous quarter, reflecting "adverse developments" at telecommunications and cable companies. JP Morgan is now trying to scale back its loan book and has been reducing new loans and commitments.
In Europe, Dresdner Bank, a unit of Allianz, has also been hit by its corporate lending policy, incurring a loss of ?1bn in the second quarter due to loan losses and falling investment banking revenues. Dresdner is now reducing its corporate lending and equity trading operations in the US and Latin America.
"Banks cannot drive using the rear view mirror alone . . . Recent events are a painful lesson of the risk of lending decisions that are not taken purely on the creditworthiness of a company," Mr Harris said.
However, he dismissed fears of insolvencies, saying banks are better capitalised now than they were during previous recessions.
> |
