Profits at the City of London banks are likely to be millions of pounds lower than expected because of exposure to sub-prime derivatives, according to a survey by US investment bank JP Morgan.
London will be the hardest hit financial centre in Europe as it has been at the centre of developing mortgage-backed products. Trading in such products has frozen after the sub-prime crisis in the US, as investors are no longer willing to buy such products, reports the FT.
European banks will be hit harder than their US counterparts as their reporting period for Q3 runs to the end of September, while the US banks reported to the end of August, lessening their exposure to the credit crunch.
As the market for sub-prime instruments has dried up, the investment banks will have to use complex modelling to find a fair value for the instruments to book into their accounts.
Further reading:
Overview: nightmare on Wall St
Comments