Worsening credit crisis pressures threaten Barclays, HSBC

The sub-prime crisis that has wreaked havoc among global banks and brokerages is likely to focus on two UK banking giants this week. Britain''s HSBC and Barclays, like other financial institutions, have been grappling with their exposure to shaky mortgage loans.

Already, financial giants including Merrill Lynch and Morgan Stanley have written-down the value of billions of dollars worth of suspect securities. The credit crunch is likely to test the balance sheets and capital strength of many others before conditions improve, analysts say.

This credit crisis is unlike anything ever seen before, feel many analysts, because it involves complicated securities that include derivatives. Nobody can accurately assess their real worth or how to price them.

This has hit Barclays'' stock price especially hard. Its US-traded shares have lost 27 per cent in the past four weeks. Speculation that the company may have to write down as much as $10 billion in underperforming sub-prime debt caused Barclays'' shares to plunge more than 9 per cent on Friday at the London Stock Exchange, after which trading in the stock was temporarily suspended.

Barclays has denied the reports of a massive write-down, but sources said the bank is working with its auditor PricewaterhouseCoopers to provide a review of its performance when it releases its trading statement on 27 November.

Traditionally, Barclays doesn''t provide financial figures with its trading statements. It is taking the unprecedented step to quell market speculation about its possible exposure to sub-prime loans.

HSBC is also likely to announce another round of write-downs for bad loans related to its US sub-prime business. The bank''s first-ever profit warning came in February, when a $10.6 billion gap in the group''s US sub-prime business was revealed. Market reports say the bank may write-down about $1 billion. The banking giant''s US-listed shares are down almost 10 per cent in the past month.