Following further losses at Germany's Commerzbank and IndyMac Bancorp Inc, one of the largest independent U.S. mortgage lenders, central bank leaders have warned of more credit tightening.
In an interview with the BBC, Bank of England governor, Mervyn King, warned that the US sub-prime mortgages crisis poses more risks for the UK's financial system.
"We have several more months to get through before the banks have revealed all the losses that have occurred, and have taken measures to finance their obligations that result from that, but we're going in the right direction."
Anxiety
Meanwhile, former Federal Reserve chief Alan Greenspan warned that the housing crisis was an ongoing risk to the US economy with billionaire investor George Soros forecasting that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending.
The warnings follow the recent internal turmoil of some of Wall Street’s banks.
Charles Prince, the head of U.S. banking giant Citigroup quit on Sunday, taking the blame for expected losses of $8-11 billion before taxes, on top of $6.5 billion it wrote off three weeks ago.
This comes amidst the departure of Merrill Lynch & Co’s Stanley O’Neal following the bank’s $8.4 billion write-down there.
Reportedly, Citigroup has named veteran financial expert Richard Stuckey to head a new team managing its subprime mortgage portfolio, according to an internal memo seen by Reuters.
Banking losses
In Europe, Commerzbank posted a third quarter net profit of €339 million ($493 million) after writing off €291 million of assets exposed to the market for risky U.S. mortgages.
IndyMac posted a net loss of $202.7 million versus a profit of $86.2 million a year earlier, as it was battered by mounting defaults and a collapse in investor demand for its loans.
International Monetary Fund chief economist Simon Johnson said financial market anxiety may have entered a second phase that could cause more credit tightening.
"We are watching the credit markets with concern," he said.
November 7 2007