Europe's Banks Rattled by U.S. Subprime Troubles
European bank and financial shares fell sharply for a second day on Wednesday as concerns mounted about the exposure of lenders to the troubled U.S. subprime mortgage market.
The deepening problems in subprime mortgages hit U.S. retail and investment banks hard on Tuesday, including 6% tumbles by Bear Stearns and Lehman Brothers, and spilled over to their European counterparts.
The DJ Stoxx Bank index was down 2.4% and banks were the main contributors to a 1.8% fall by the broad FTSEurofirst 300 stock index.
The biggest fallers included Credit Suisse, UBS, Barclays, Deutsche Bank and Royal Bank of Scotland, all down 3% or more.
Closer to Bankruptcy
The U.S. subprime housing troubles mounted on Tuesday after New Century said its lenders plan to halt financing, pushing the largest independent U.S. subprime mortgage lender closer to bankruptcy.
Morgan Stanley is New Century's biggest lender, but Europe's Credit Suisse, UBS and Barclays have all provided credit.
UBS repeated on Wednesday its exposure to New Century was secured. It has declined to quantify the size of its loan.
Barclays has said it does not expect any material losses from its exposure to subprime lending as the vast majority of its lending to the segment was "fully collateralized and short term."
Europe's biggest bank HSBC Holdings has been hit most directly by its exposure to the U.S. subprime market. Its North American bad debts jumped 38% last year to $6.8 billion.
HSBC in recent years became a buyer of subprime loans originated by other lenders in the U.S., but has now pulled back from the sector.
Spain's Santander also has exposure to subprime lending through its car lender Drive.
Santander was also affected by fears that problems will spread into the broader U.S. housing market, which also hurt other banks with a U.S. presence away from the subprime sector, including RBS and Banco Bilbao Vizcaya Argentaria.