Europe's Banks Facing Further EU120 Billion in Losses

By Ambereen Choudhury and Joyce Moullakis
July 21, 2008 (Update2)
Source

July 21 (Bloomberg) -- Banks in Europe are set to post further losses of 120 billion euros ($191 billion) on retail lending as they reel from credit and mortgage writedowns, according to New York-based management consultants Oliver Wyman.

Losses from now to 2010 will ``rapidly increase'' especially in Britain, Spain and Ireland, according to the report, issued jointly today with Intrum Justitia, the Swedish debt collector.

``The combination of aggressive lending by the banks and the risk of the macroeconomic environment significantly changing for the worse, means that these countries stand out as the worst-hit,'' the report said.

Banks are curbing lending following the collapse of the U.S. subprime mortgage market, which so far has cost financial institutions worldwide $448 billion in losses and writedowns.

Next year, credit and mortgage lending losses in Britain will rise 44 percent to more than 21 billion euros over 2007, the report said. U.K. mortgage loss rates are set to increase as much as tenfold, it added.

British house prices will fall about 10 percent this year and 6 percent next year, the Ernst & Young Item Club, a forecasting group which uses the same model as the Treasury, said today. Britons are saddled with a record 1.4 trillion pounds of debt.

HBOS Plc, the U.K.'s biggest mortgage lender, has undertaken a 4 billion-pound rights offering after writing down a similar amount on credit-related investments. The bank said earlier today that 92 percent of shareholders shunned the offering, leaving underwriters seeking buyers for 3.8 billion pounds ($7.6 billion) of shares.

Losses in Spain will be 2.1 billion euros higher than 2007 levels and 400 million euros higher in Ireland, the report said.

U.K. consumer credit losses have risen by more than a fifth in the last two years and are running at about double levels in the rest of Europe, according to the research.

To contact the reporters on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net; Joyce Moullakis in London at jmoullakis@bloomberg.net
Last Updated: July 21, 2008 10:43 EDT