Subprimes… on cherche le fond…


[Economist] THIS week saw another round of bloodletting as bankers grappled with the effects of the credit crunch. Barclays Capital and CIBC joined the long list of lenders to jettison senior investment bankers. And, to nobody’s surprise, Jimmy Cayne stepped down as boss of Bear Stearns, the Wall Street bank with the hedge-fund problems that arguably marked the start of the crisis last June. Tony Blair, Britain’s former prime minister, recruited to Wall Street on Wednesday January 9th as an adviser to JP Morgan Chase, must wonder what he has let himself in for.

Worse, it is no longer just collateralised-debt obligations and other complex securitised products that are hurting the world’s largest bank (by assets if no longer by market value). Credit cards and other consumer-finance businesses are deteriorating fast as America’s economy flirts with recession. Citi reported a $4.1 billion rise in credit costs in its American retail operations for the quarter and indicated that losses will grow. It does not help that a hefty 13% of its loans are to subprime borrowers. Corporate lending also looks wobbly. And Citi is on the hook for billions-worth of loans for leveraged buyouts. Since the markets turned, these have proved hard to shift on to other investors.[Modernitudes]

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