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Non-Tech : Shorting the Big Banks (e.g. JPM, BT, CMB, CCI) -- Ignore unavailable to you. Want to Upgrade?

To: BDR who wrote (55)	9/6/1998 6:27:00 PM
From: C.K. Houston	Read Replies (1) \| Respond to of 268

Will borrowers drop Y2K bomb on banks? BusinessToday.com Sep 6 '98 - By Jane J. Kim/Dow Jones News Service ========================================================= Not as interesting as current meltdown, but worth putting in your memory bank. The nation's banks have been working busily to ensure their own computer systems are in order for the year 2000. But experts say more needs to be done to make sure their customers' systems are compliant for the date change. The risk? If companies with outstanding bank loans suffer system malfunctions, banks will have to scramble to cover those loans. That means higher loan losses and loan-loss reserves. Loan losses totaling $5 billion - equal to a half-year's worth of earnings growth - are possible for the banking industry, assuming the losses are equal to 10 to 15 basis points of loans for the industry, and based on an informal survey of bank managers, analyst Michael Mayo of Credit Suisse First Boston Corp. estimates. A number of large banks in the U.S. already have started to identify reserves related to business operational risk and potential loan losses, said Lou Marcoccio, Year 2000 research director at Gartner Group Inc. of Stamford, Conn. A small number more are likely to follow, he said. At least one bank - Amsouth Bancorp - already has set up a specific reserve in anticipation of potential loan losses from customers' Year 2000 problems ... "If borrowers from a bank can't pay off the debt due to their Year 2000 related problems, then banks will incur losses," Mayo says. "Even if banks take all the right steps, problems at their customers could still cause them problems." For their part, banks say they have been working closely with their customers and other third parties to make sure the Year 2000 challenge is understood. As banks, they say, they're in the business of managing risk - so they've taken appropriate steps to manage credit risks. "All the financial institutions are concerned about customer credit risk," said Ann Goodbody, executive vice president and head of Citicorp's credit policy group. More than a year ago, Citicorp established a program to work with its customers and evaluate their readiness for Year 2000, Goodbody said. The company, she says, has "a very comprehensive program" that examines everything from the infrastructure of the countries in which the bank does business, to country payments systems, to the types of industries involved. Moreover, Citicorp, now finalizing a merger with Travelers Group Inc. (TRV), has sent out questionnaires to customers to learn how each is approaching Year-2000 remediation programs, their costs, processes and durations. That way, the bank can get comprehensive view of the client's credit risk, she said. businesstoday.com ====================================================== Hmmm - Citicorp sent out questionnaires. Doesn't know client's credit risk? Waited a year to send out questionnaires after identifying this as a potential problem? Asia, Latin America, Africa and middle East are 18 months behind U.S. with Y2K remediation. Most European countries (except possibly U.K. and Netherlands are 12 months behind U.S. FED said that they will bar transactions with foreign banks which are not Y2K compliant. Will make it pretty tough to do business. Major telecoms said they will not do business with foreign telecoms if they are not Y2K compliant. Will make it pretty tough to communicate. Expect failures to start occurring next year, because of fiscal years ending in 2000. Expect losses FAR greater than $5 billion referenced above. Cheryl I've been researching Y2K for 3 years. Thought I'd share a bit of info. ======================================================= Federal Reserve System and other government agencies are worried about widespread runs on the banks: -Making provisions for substantial oversupply of currency to meet currency drain. -Central bank is preparing for potential heightened demand for cash. Treasury Department is now printing extra ($50 billion) currency , especially in large denominations such as $100 bills, in preparation for expected depositor demand for cash. One banker says his bank is convinced that social security, disability and other federal entitlement payments will be bogged down by Year 2000-crippled computer systems, and he is preparing to pay his bank's depositors based on previous pay stubs, then work with the government to be repaid once the computer system is repaired. Some banks already making plans for extra bank security & scheduling back-up generators in case electrical power is interrupted in the days and weeks following the turn of the century. Among the most serious concern is federal government's readiness for 2000, that is said to be, perhaps irreparably behind schedule. Such scenarios could lead fearful depositors to stockpile currency in the months leading up to 2000, perhaps severely straining the currency system. Banking industry officials concede that all efforts here to prepare U.S. bankings systems for the next millennium may not be enough. Worst threat could come from overseas, where Asian and European financial institutions lag far behind their American counterparts in making the Year 2000 fix. amcity.com Boston Business Journal usatoday.com USA Today