JPMorgan Sees London as Major Casualty of Subprime Crisis

Mon, 01 Oct 2007

US bank JPMorgan has predicted huge reductions in profits in the City of London, as banks feel the effects of the subprime crisis. The report pinpoints London as the biggest losers, with banks failing to sell any loans in asset-backed financial products as investors are reticent to buy the securities. Furthermore, the report forecasts that Europe’s 11 leading banks will lose £550m in revenue and £415m in profits in the second half of the year.

The banks encompassed in the prediction include Barclays Capital, the Royal Bank of Scotland, HSBC, UBS and the Deutsche Bank, amongst others. Meanwhile, British bank Northern Rock – not including in the JPMorgan report – has suffered more than most, having issued mortgage backed securities to raise large sums of money .

Prior to this summer, London has been at the forefront of financial innovation and securitisation. Over the past four years, demand for asset-backed products has swelled, with volumes doubling as new issuance reached a record £280bn last year. Indeed, Barclays Capital estimates that asset-backed securities, typically secured against mortgages, loans or credit card debt, are worth £400bn in oustanding issuance in the UK alone, and £850bn across Europe.
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