Monday, May 31, 2010

ECB- )--Banks in the euro zone will suffer "considerable" loan losses this year $BCS $HBC $CS $DB

By Nina Koeppen
  FRANKFURT (Dow Jones)--Banks in the euro zone will suffer "considerable" loan losses this year and next, which could  amount to an additional EUR195 billion in write-downs and weigh on banks' profitability, the European Central Bank said  Monday.
  The prospect of write-downs on loan values together with "continued market and supervisory authority pressure on banks to keep leverage under tight control, suggests that banking-sector profitability is likely to remain moderate in the medium term," the ECB said in its semiannual Financial Stability Review.
  It estimated that banks in the euro bloc may suffer net write-downs on loans and securities of EUR90 billion in 2010, and an additional EUR105 billion in net losses in 2011.
  "We are experiencing now a second wave of write-downs, which relate to the performance of loans," ECB Vice President Lucas Papademos said at a press briefing. "This is not unexpected. Although write-downs on loans will decline, they will continue, simply reflecting the overall performance of the economy," he said, speaking on his last day in office.
  Papademos will retire from his position at the end of Monday. Portugal's Vitor Constancio will take up the post from Tuesday.
  The ECB cautioned that loan losses in 2011 may even exceed current estimates.
  "Heightened sovereign risks and possible second-round effects of the fiscal consolidation that is necessary in most euro area countries could pose some downside risks to economic growth in the area," the ECB said. "Should these risks materialize, loan-loss provisions should most likely be higher in the period ahead."
  The ECB revised down its previous estimate of cumulative write-downs on loans and securities from 2007 to 2010, to  EUR515 billion from EUR553 billion previously.
  "The overall [financial sector] resilience has increased, taking into account that capital buffers have been
strengthened," Papademos said. "But, at the same time, we are aware of the challenges ahead, particular with respect to  public finances."
  The ECB estimates that large euro-zone banks will have to extend, or roll over about half of their longer-term debt outstanding by the end of 2012.
  "With several euro area governments also facing heavy financing requirements over the coming years...this raises the risk of bank bond issuance being crowded out," the ECB cautioned in its report.
  The euro zone's aggregate budget deficit this year is expected to be 6.6% of gross domestic product, more than twice  the 3% maximum allowed by the European Union's Stability and Growth Pact.
  Papademos warned about the dangers of an "adverse feedback between the financial sector and public finances continuing."
  "The emphasis is on continuing, because it's already going on," he said.

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