Euro Banks Holding the Bag

In what could be a new and more devastating phase of the global credit crunch caused by subprime lending, European banks are being advised to devalue their debt holdings by another $68 billion. They have already written off $58 billion in losses due to the collapse in credit markets. Merill Lynch advised City bankers that the top eleven banks could need a further write down because the markets do not support the 74 cents on the dollar valuation currently used by European banks for subprime debt. The banks most likely affected are UBS, Barclays, Royal Bank of Scotland, Fortis and HBOS which could suffer a 14% wallop to their book value. Investors and regulators are calling for large write downs to reduce uncertainty in global credit markets. The affected banks are reluctant to take the action since their profitability would be negatively impacted.