Business and Capital Market Analysis !!!

Mon Nov 3, 2008 1:34pm GMT
By Mike Peacock

• SocGen, HBOS, Midwest Banc and Commerzbank suffer
• European Commission says euro zone in technical recession
• South Korea announces $11 bln stimulus, Germany to follow
• Asian stocks up 6 pct, Europe flat, Wall St set to climb
  

Profits evaporated at leading banks on Monday and authorities worldwide pressed on with efforts to temper a recession that policymakers said had become reality for much of the globe.

The European Commission said the 15-nation euro zone was in a technical recession and economic growth would come to a virtual standstill next year. It called for coordinated action.

In Jerusalem, Richmond Federal Reserve Bank President Jeffrey Lacker said the U.S. economy was contracting. Data last week showed it shrank at a 0.3 percent annual rate in the third quarter, its sharpest squeeze in seven years.

French bank Societe Generale (SOGN.PA: Quote, Profile, Research) reported an 83.7 percent drop in third-quarter net profit.

Net profit fell to 183 million euros ($234 million) with losses from the collapse of U.S. bank Lehman Brothers and other writedowns costing it 1.208 billion euros in pre-tax income.

Germany's second-biggest bank, Commerzbank (CBKG.DE: Quote, Profile, Research), said it would take an 8.2 billion euro capital injection from the state and another 15 billion to secure refinancing. It posted a third quarter net loss of 285 million euros.

Britain's biggest home lender HBOS Plc (HBOS.L: Quote, Profile, Research) raised its hit from the value of risky assets and bad loans to over 5 billion pounds ($8.14 billion) as its takeover partner Lloyds TSB (LLOY.L: Quote, Profile, Research) predicted a sharp fall in profits.

Lloyds stepped in to buy HBOS in a government-brokered deal after HBOS was hit by the crisis and concerns about its exposure to Britain's weakening housing market.

Illinois-based Midwest Banc Holdings Inc (MBHI.O: Quote, Profile, Research) posted a $159.7 million third-quarter loss, and said it had got preliminary approval to receive $85.5 million of new capital in the form of preferred stock, to be issued to the U.S. Treasury.

Washington, Berlin, Paris and London have all offered to inject capital into their banks to prevent systemic meltdown.

French Prime Minister Francois Fillon was quoted by Le Figaro newspaper as saying that if banks did not use the money to lend to businesses, then the government could take direct stakes in them, as Britain has.

The credit crunch, which stemmed from a collapse in the U.S. housing market, has prompted banks to clam up on lending to each other, businesses and households for over a year now.

Interbank lending rates fell, extending last week's decline, reflecting ongoing central bank efforts to add liquidity rather than banks lending to each other.

Banks deposited a record 280 billion euros with the European Central Bank on Monday rather than making it available to peers.

RECESSION PROMPTS STIMULUS
While trillions of dollars in bailouts may have averted a banking collapse, the economic outlook is grim, prompting governments to put together fiscal stimulus packages to ease a recession born of the worst financial crisis in 80 years.

RATE CUTS COMING
Central banks will also put their shoulders to the wheel.

Following rate cuts from the Fed, China and Japan last week, the European Central Bank, Britain and Australia are expected to cut interest rates by at least 50 basis points this week.


Source:
UK Reuters