Sub-prime crisis may spread further

 

The subprime crisis is not over yet and could spread to other credit markets, making it important that banks have a strong capital base, a Swiss regulator and prominent member of the Basel Committee said.

"The danger is not over yet. The subprime crisis could spread to other credit markets, such as in the fields of credit cards, consumer credit, car financing, student loans or commercial credit," Daniel Zuberbuehler, head of the Swiss Banking Authority (EBK), told newspaper NZZ am Sonntag in an interview published on Sunday.

 

Zuberbuehler also sits on the Basel Committee on Banking Supervision, which sets standards for internationally active banks and advises on how much capital they should set aside against risks.

"Nobody can make predictions about developments in complicated credit securitisation markets with certainty. That's why it is important that banks have a strong capital base," he said.

Zuberbuehler and the EBK have been in almost daily contact with Switzerland's largest bank, UBS AG.

Earlier in December, UBS announced a $10bn writedown and a massive injection of funds from Singapore and the Middle East, making it the biggest subprime crisis casualty to date among major European banks.

The writedown followed a $3.7 billion hit UBS suffered at the end of October that was also related to U.S. subprime mortgages -- loans made to high-risk home buyers who face rising interest rates and are now defaulting on payments.

At Credit Suisse, management appears to "have had the better nose" for smelling trouble ahead and cut its exposure to risky credits before the crisis erupted, Zuberbuehler said.

The risks that remain on Credit Suisse's books are "rather manageable", he said.

Chief Executive Brady Dougan said on Saturday that the group had cut its exposure in corporate finance since end-September, when it held obligations worth 60 billion Swiss francs ($52.31bn).

Credit Suisse's investment bank was hit by writedowns of more than 2.2bn francs in November. (Reuters)