Deutsche Bank CEO outspoken among European bankers in calling for banks to inform investors about the full extent of their risk exposure.
Oh, what do we have here! A banker who knows what bank is, telling the banks to tell Elroy that they are exposed.
The central bankers must be hating him for bringing to light the "reassuring thing"
Banks face more pressure to come clean on exposure
By Andrew Hurst, European Banking Correspondent
ZURICH (Reuters) - European banks risk fuelling the uncertainty that already plagues the global financial system and are under growing pressure to admit all the losses they have sustained in the past six weeks of violent market turmoil.
"They have to bite the bullet," said analyst Luis Maglanoc at UniCredit.
"If groups of banks start doing this then they set the lead and everyone else follows. It has to do with safety in similarity," said Maglanoc, who said he witnessed banking crises in Scandinavia and in Asia over the past two decades.
European banks are hoarding cash before a make-or-break week in which around $113 billion (56 billion pounds) of commercial paper -- used to fund structured investment vehicles (SIVs) which put the money mostly in longer-term debt securities -- falls due.
But banks need to do more than just shoot the rapids over the next few weeks as they find out how much of the SIVs' funding can be rolled over and how much they have to make good with liquidity lines that they have committed to provide.
There is now a growing sense of urgency that they have to come clean with investors as to exactly what their losses are and promptly make mark-to-market adjustments to their portfolios.
"In the current distressed markets, there is anxiety and uncertainty about how this or that bank is exposed and to what extent, until it is practically too late," Maglanoc said.
U.S. investment banks such as Goldman Sachs and Lehman Brothers, which closed their third-quarter books at end-August and report later this month, may help set the process in motion if they reveal market losses from acute turmoil in August.
ACKERMANN'S APPEAL FOR TRANSPARENCY
Deutsche Bank CEO Josef Ackermann has been outspoken among European bankers in calling for banks to inform investors about the full extent of their risk exposure.
"Ackermann is right to call on people to lay their cards on the table and the quicker everyone does that the quicker we return to normality," said Gerry Rawcliffe, Managing Director of financial institutions at Fitch Ratings.
More transparency could also help banks feel less uneasy about lending money among themselves.
Failure to refinance the SIVs, many of them set up by the banks themselves but not held on their own balance sheets, could force banks to inject liquidity to keep the vehicles afloat.
That is a key reason why banks are reluctant to lend money to each other and are instead holding on to it in the event that calls are made on them to provide liquidity to the SIVs, say analysts.
The asset-backed commercial paper (ABCP) has been at the root of money market problems over the past month because of worries that many of the investment vehicles that sought funding on the market are exposed to distressed subprime mortgages.
"We are not out of the woods by a long way. September will be a testing time because of the ABCPs coming up for rollover," said Rawcliffe.
Seven SIVs run by Citibank said on Thursday the credit quality of their portfolios remained very strong and that they had succeeded in issuing commercial paper in August.
An SIV run by hedge fund Cheyne Capital Management on Wednesday appointed Deloitte as receiver after mark-to-market losses on its portfolio forced it to wind down.
Marking down portfolios to reflect their reduced value "can only happen with more transparency and widespread availability of information among a larger share of market participants, effectively bringing about greater price consensus," said Moody's in a report.
Banks face a big challenge marking to market under current conditions with little or no liquidity in markets for complex instruments, said analysts.
(Additional reporting by Richard Barley and Natsuko Waki in London)
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