Mumbai:
Deutsche Bank expects its profit to nosedive 1.7 billion euros ($2.4 billion)
because of loans that have dwindled in value as a result of the mortgage market
crisis, even as the International Monetary Fund (IMF) warned the turmoil would
continue with far reaching consequences. Deutsche
Bank chief executive Josef Ackermann last week acknowledged the bank was heading
for a rocky third quarter, flagging an upcoming revaluation of 29 billion euros
of credit it had promised to clients. Deutsche
normally sells loans to other banks, but this has become difficult in the wake
of a credit squeeze that followed a wave of mortgage defaults in the US. The
bank now may have to write down the value of these loans to reflect this. Deutsche
estimates that the credit is now worth between 4 and 6 per cent less than face
value. That
would hit its third quarter profit by up to 1.7 billion euros compared to the
profit booked in the same period a year ago. Deutsche
is now trying to get clients to renegotiate credit terms or drop deals to shrink
the size of the fallout. The loss could also shrink if credit market conditions
improve. The
bank may be able to use its muscle to renegotiate the terms of the credit, which
in turn makes it easier for them to sell to other banks and reduces the need for
write-downs. The
IMF, meanwhile, warned the turmoil was set to continue with far reaching economic
consequences and more financial firms detailed damage to their loan books. While
Deutsche looked set to lose up to 1.7 billion euros ($2.4 billion) in profits
from falls in loan values, Japan''s largest lender, Mitsubishi UFJ Financial Group,
said it might have to mark down some of its investments. Financial
markets are betting the US Federal Reserve will have no choice but to cut interest
rates again as early as its October 30-31 meeting to curb a housing-led slowdown
in the wake of trouble in the risky mortgage sector. International
Monetary Fund Managing Director Rodrigo Rato said the US economy was likely to
bear the brunt of the impact of the credit squeeze and that global growth next
year was likely to be below 2006 and 2007 levels.
also see : General
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