European banks eye capital and gird for loan losses

European banks shored up their stockpile of capital on Monday amid concerns about a rising flood of bad loans from the spreading economic storm.
Banks around the region already have taken billions of Euros in write downs on their investments in complex structured credit products, but the financial crisis is increasingly spreading to the real economy, creating a double-whammy for earnings as companies cut borrowing and struggle to repay business loans.
Swedish financial group Swedbank scrapped plans for a dividend for 2008 due to a worsening economic environment, particularly in the Baltic states and Ukraine, where sharp recessions are likely to lead to a big increase in loan losses.

Swedbank Chairman Carl Eric Stalberg said the bank was very well capitalized and markets initially cheered the move to bolster the capital base, though worries about the outlook in eastern Europe weighed.
"Things have got so bad in the Baltics that they have got to do this, and that is negative," said Henrik Schmidt, analyst at Keefe Bruyette & Woods.
Swedbank made a six-fold increase in loan loss provisions in the fourth quarter mainly due to contracting Baltic economies.
Investors have also worried about eastern Europe business at other lenders, such as Italy's UniCredit and Germany's Commerzbank, which on Monday said it was pumping 4 billion Euros (3.64 billion pounds) into recently acquired Dresdner Bank to shore up its regulatory capital. Another big player in emerging markets, HSBC, was also under pressure on Monday, losing 11 percent as short sellers dumped the stock in anticipation of buying it back after the bank completes its $17.7 billion rights issue.
"With HSBC there are worries about credit quality ... There is not a whole lot that is bright news out there anywhere today," said Bernard McAlinden, strategist at NCB Stockbrokers.
"There are doubts everywhere that policy response cannot actually stabilize the global economy," he said.
Even a more optimistic outlook by the chief executive of Germany's biggest bank, Deutsche Bank, was unable to cheer the European banking sector, with the DJ Stoxx sector index down 4.7 percent at 12:36 p.m. British time.
Deutsche's Josef Ackermann said the positive business trend his bank had seen in January had continued last month.
"By the end of January, we had revenues of 2.8 billion euros. February largely confirmed this development," Ackermann told German business daily Handelsblatt.
Shares in Belgium-based Fortis gained 27 percent after the Belgian government and BNP Paribas revised the terms of the break-up of the financial group.
Meanwhile, the European Union is set to back the International Monetary Fund's (IMF) call for a doubling of its funds as a growing number of countries turn to it for help, ahead of the G20 summit.
Last week, the IMF acknowledged its warnings before the crisis were insufficient.
CAPITAL HEADACHE
Lenders and their national governments are still fretting about how best to tackle the capital problems at the heart of the financial crisis that are sapping confidence and keeping banks from lending, compounding the slump.
Financial officials are trying to hammer out a common approach.
Top executives of leading U.S., Japanese and European banks will meet in London this month to discuss regulation and other issues key to the future of the financial system, two industry sources said.
The British government will host the meeting on March 24, after a gathering of Group of 20 (G20) finance ministers in London this weekend and ahead of a summit of G20 leaders there on April 2, according to the sources who declined to be identified because the meeting has not been made public.
The meeting was expected to discuss capital adequacy guidelines and other regulatory issues, the sources said.

The crisis is continuing to keep regulators busy.
Iceland's financial watchdog said on Monday it had taken over investment bank Straumur Burdaras, the last major Icelandic bank left standing after the country's financial collapse in October.


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Dollar higher as yen wanes

The dollar rose against major rivals on Monday, while the yen weakened on news of a record current account deficit in Japan, the world's second biggest economy after the United States.
The European single currency fell to 1.2626 dollars in London trade, from 1.2652 dollars late in New York on Friday.

Against the Japanese currency, the dollar rose to 98.70 yen from 98.27 yen on Friday.
Traders were reluctant to drive the US currency down far against its major rivals given deep worries about the health of the euro zone and Japanese economies, market-watchers said.
"With the global economic outlook remaining rather bleak, it's going to be that fight for the safer havens that will continue to dominate market direction in the near term and so long as there's nothing better out there then the dollar may end up holding its ground," said CMC Markets analyst James Hughes.

The yen meanwhile declined on news that Japan posted a current account deficit of 172.8 billion yen (1.8 billion dollars) in January -- the largest since comparable records began in January 1985.
The data means "it's difficult for the yen to strengthen further," Koji Fukaya, senior currency analyst at Deutsche Securities, told Dow Jones Newswires.
Historically, Japan has run a large surplus in its current account thanks to brisk foreign demand.
But the global crisis has prompted consumers to tighten their purse-strings in the United States and Europe, prompting Japanese companies such as Toyota and Sony to launch a wave of job cuts.

The yen, once seen as a safe haven in the global financial crisis, has lost some of its allure in the eyes of investors because of the rapid deterioration of the Japanese economy.
"Fundamentally, we believe that sustained yen strength is over for now," Standard Chartered analysts wrote in a note.
Elsewhere on Monday, the European Bank for Reconstruction and Development (EBRD) urged the European Union to ease euro entry rules so as to help crisis-hit eastern European countries.
"The European Commission should send a clear signal of solidarity to eastern European countries," EBRD head Thomas Mirow told the German business newspaper Handelsblatt in an interview published Monday.
The euro was changing hands at 1.2626 dollars against a level of 1.2652 dollars reached late on Friday, at 124.45 yen (124.35), 0.9033 pounds (0.8986) and 1.4619 Swiss francs (1.4654).
The dollar stood at 98.70 yen (98.27) and 1.1593 Swiss francs (1.1579).
The pound was at 1.3958 dollars (1.4076).
On the London Bullion Market, the price of gold rose to 938.10 dollars an ounce from 936 dollars an ounce on Friday.


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Mitsubishi UFJ Financial, Japan’s biggest bank, on Friday cut its full-year earnings outlook, joining several of its domestic rivals in reporting dismal earnings that exposed the strains to the sector from sharp falls in the stock market last year.
While toxic mortgage-related assets that have dragged down numerous U.S. and European banks, a shrinking economy and a drop in the value of Japanese banks’ sizeable stock market holdings have emerged as the main problem for banks like Mitsubishi UFJ, Mizuho Financial Group and Sumitomo Mitsui Financial, and others.
Ownership of Japanese companies’ helps cement business ties for many banks in the country but the market rout has forced them to revise downward the value of those assets, eroding their capital bases.

Although analysts had long cautioned that the sharp fall in the global stock market during the last three months of 2008 would have this effect, the third-quarter results reported by Japanese banks in recent weeks highlighted the scale of the issue, and thrust it to the forefront of policymakers’ concerns for the sector.

The governor of the Bank of Japan, Masaaki Shirakawa, on Friday reiterated that the falling value of their cross-shareholdings represented the biggest risk for Japanese banks. And earlier this week, the central bank aimed to address the same point by offering to buy up to 1 trillion yen, or $11.1 billion, of the shares that Japanese banks hold in other corporations.


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