RegulationAccounting StandardsUK banks face credit-crunch ‘losses’ threat

UK banks face credit-crunch ‘losses’ threat

Different accounting rules could allow British banks to stay silent on impact of financial turmoil

British banks may be sitting on big credit-crunch losses because their
accounting methods differ from those of investment banks that have recently
declared write-downs, it has emerged.

UBS, Deutsche Bank, Citigroup and Merrill Lynch have declared billions in
losses on mortgage-backed securities and leveraged debt in recent weeks. But UK
banks have remained largely silent, even though some are major players in these
markets, according to a report.

Deutsche, UBS and the US banks account for the current value of assets
through their profit and loss account, whereas UK commercial banks only have to
take an impairment charge on their P&L if they think that they are going to
lose money through non-payment. This is a longer-term calculation than the
snapshot of ‘marking to market’.

Tony Clifford, a partner at Ernst & Young, told
The
Independent
: ‘British banks have smaller investment banking operations and a
smaller proportion of their assets will be at fair value, so the numbers should
be somewhat smaller. Also, the markets have a chance of recovering by the end of
the year.’

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