Banks could face £70bn debt bill
Published September 10th, 2007
Last Updated: Monday, 10 September 2007, 09:23 GMT 10:23 UK
E-mail this to a friend Printable version
Banks could face £70bn debt bill
Banks rely on such debt to boost their short-term cash flows
Leading UK and European banks may be forced to pay out as much as £70bn ($142bn) over the next 10 days as the global credit crunch continues to bite.
The banks may have to pay out that sum if investors, such as pension funds, decline to buy the banks’ latest debt issues which are now due for renewal.
Analysts say investors are reluctant to buy the new debt until the full impact of the US home loans crisis is known.
With fewer buyers for the debt, banks may have to refinance it themselves.
Officially called “commercial paper”, banks use the issuing of such short-term debt to help boost their day-to-day working funds or cash flow.
Many of the loans that are due to mature have been financed for three months or less.
Institutional investors, such as pension or insurance funds, are usually happy to buy the commercial papers, as the banks then pay them interest, and they are traditionally seen as very safe investments.
However, all this has now changed since the start of the ongoing crisis in the US sub-prime mortgage sector, which specialises in higher risk loans to people with poor credit histories or those on low incomes.
As US mortgage rates have risen sharply over the past year, it has led to record levels of loan defaults and home repossessions.
Share This Article by Email or Social Web
Related Articles
