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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (63138)	3/10/2003 12:01:54 PM
From: Real Man	Respond to of 94695

Warning on credit derivatives By Jenny Wiggins in New York European regional banks have taken on a lot more risk than their public accounts show because of heavy exposure to credit derivatives, according to new research. Three-quarters of the European banks surveyed in a report by Fitch, the credit rating agency, have sold about ?50bn (£34bn) of credit protection to other parties. Half of these banks were German, with the state-owned Landesbanken being particularly active. They have increased their exposure to high-yielding derivatives to offset flagging profits in traditional lending businesses. Fitch says it may cut the credit rating on banks with large exposures to credit derivatives. The Fitch report follows last week's warning from Warren Buffett, the influential US investor, that derivatives represented "financial weapons of mass destruction" and are "potentially lethal" to the economic system. Fitch said the European banks' exposure to credit derivatives was surprising because banks typically buy credit protection to reduce risk. Institutions that sell protection on a bond or loan using a credit derivative assume the underlying credit risk of the security. Although European banks are net buyers of protection, with about ?65bn purchased, the bulk of the buying has been undertaken by a few big institutions. Only 30 per cent of European banks active in the credit derivatives market are protection buyers. Fitch has spent three months trying to quantify financial institutions' exposure to credit derivatives but has been only partially successful. Some institutions have refused to disclose information about their derivative activities. "We need more financial transparency," said Roger Merritt, Fitch analyst and co-author of the report, to be released today. Fitch plans to meet with global regulators to encourage more disclosure of credit derivatives activity