Banking Downturn Felt in UK, OZ

The downturn in the U.S. and its banking sector echoed around the globe this week as international financial institutions reported their latest results and several research reports demonstrated pressures on over-burdened consumers.

The Belgian-Dutch bank Fortis reported Friday its subprime write-downs reached $4.1 billion, and its quarterly profits fell 45 percent, according to the MarketWatch news service. Fortis had net profits of $635.2 million, down nearly 45 percent from $1.1 billion a year ago.

International banking giant HSBC Holdings on Monday reported its profits rose 21% in 2007 to $19.1 billion, though its North American earnings fell 98 percent to $91 million due to losses in the subprime-mortgage market. Its loan-loss charge offs rose 63% to $17.2 billion, largely due to its U.S. lending.

Some investors in HSBC have called for the sale of its Household unit, the U.S. bank that HSBC bought in 2003 to grow in the American market. CEO Michael Geoghegan brushed off that idea but said HSBC might sell some of its debt portfolios in the U.S.

Last week, the Daily Telegraph newspaper reported that British banks wrote off $13.5 billion in individual debt in 2007, the largest total since it began tracking the figure in 1993. And the Capital Economics Bad Debt Index found that consumers’ bad debts will increase this year.

"This is certainly a sign that households are already struggling. The debt burden is high, and you would expect write offs to rise as a result," said Alan Clarke, an economist at BNP Paribas.

"But it’s still early days and there’s more bad news in the pipeline. We haven’t yet seen arrears starting to bite, and if these numbers look bad now, they’ll look even worse in a year’s time. There are plenty more dead bodies out there," Clarke added.

In Australia, Lehman Brothers analysts reported that OZ’s four biggest banks may need to triple bad debt provisions as companies struggle to pay higher borrowing costs. Commonwealth Bank of Australia, National Australia Bank Ltd., Westpac Banking Corp. and Australian & New Zealand Banking Group Ltd. have lent an estimated $6.1 billion to troubled companies, the Lehman report said. The four banks set aside $2.5 billion in bad debt provisions in their 2007 fiscal year, the analysts said.

Some Australian companies are having difficulty getting loans to continue operating. Interest rates are at 7 percent, their highest levels in 13 years, as the Australian central bank works to lower inflation.