Global banks are going to take far longer than previously imagined to clear away debris left by a receding tide of U.S. subprime mortgages which has played havoc with balance sheets, a top investment banker said on Monday.
"The current environment situation will continue for quite a long period of time, a lot longer than perhaps anybody felt a few weeks ago," said Alex Wilmot-Sitwell, global co-head of investment banking at UBS.
"Banks are really struggling to come to terms with unwinding the extent of potential write-offs," said Wilmott-Sitwell, who was speaking at the Reuters Finance Summit in London. "This is going to take a very long time to work through."
Banks in North America and Europe have taken charges running to billions of dollars on holdings on mortgage-backed securities which have been decimated by a meltdown in subprime mortgages - loans extended to borrowers with shaky credit histories.
The crisis has also set off a chain of boardroom upheavals as chief executives of global banks are called to account for huge writedowns on their securities portfolios, resulting in quarterly losses in some cases.
The latest casualty was the head of Citigroup, Chuck Prince, who stepped down on Sunday after the bank said it might suffer an $11 billion writedown for subprime losses, on top of $6.5 billion it wrote off three weeks ago.
Wilmot-Sitwell said he wondered whether banks were always doing the right thing by ejecting chief executives when their business ran into trouble.
He said a lull after a first round of writedowns by banks in August had turned out to be temporary and a new subprime storm had been unleashed with even greater ferocity.
"The sense of stabilisation and calmness that resulted after the first wave of disclosure has been knocked over," he said. "That was the eye of the storm, there is a long way to go in terms of full understanding of what lies behind the numbers and the balance sheets of banks around the world," he added.
The disappearance of a liquid market for the securities underlying the parcels of mortgage-backed debt that many banks are holding was proving a severe challenge.
"At the moment there is no market for underlying securities ... it is amazingly difficult to understand the value of these underlying assets," he added.
UBS, which reported its first quarterly loss last week in five years after taking 4.4 billion Swiss francs of writedowns, has said it is likely to have to make further writedowns in the final quarter of the year.
But the effect of the crisis in the U.S. residential mortgage market on the economy was a greater worry than any damage that had been inflicted on banks' balance sheets.
"The long-term impact on the balance sheet is not the major issue. A much bigger issue is the fallout of the residential mortgage (market) in the U.S." said Wilmot Sitwell.
He also sees Asian banks as being in a position to take advantage of a crisis which has mainly engulfed U.S. and European financial institutions although the ascent of Asian finance is likely to be gradual.
"I don't see immediately some mass switch of asset value and power from the U.S. and Anglo-Saxon old powers to India and China.
It's going to happen over decades not over a few weeks," he said.