Britain faces biggest losses as crunch costs spiral, IMF warns
Fund raises estimate of financial crisis losses to $4.1 trillion
Wednesday 22 April 2009
The UK's banking bailout could cost more than any other financial rescue scheme in the world, figures from the International Monetary Fund revealed yesterday, as the lender raised its estimate of the total global cost of the credit crunch to $4.1 trillion (£2.8 trillion).
The IMF said the cost to the UK of financial stabilisation could be as much as 13.4 per cent of GDP, the highest of any advanced nation except Ireland, although analysts pointed out that this was the "worst-case scenario". That would be the equivalent of £200bn, or £3,000 for every man, woman and child in the country.
The IMF figures were seized upon by the Conservatives, who pointed out that official government estimates of taxpayers' losses from the banking sector are likely to come in at around £60bn. The shadow Chancellor, George Osborne, condemned what he called "the potentially massive cost of Gordon Brown's utter failure to regulate the banking system".
However, a Treasury spokesman said the IMF forecast was very high, and did not take the consequences of the Government's actions into account. He added that today's Budget would "make a prudent provision for potential losses".
The IMF, which does not expect a speedy recovery for the world economy, made the bearish predictions in its "Global Financial Stability Report", published yesterday.
Should global writedowns hit $4.1 trillion, as the IMF expects, it would mark a staggering further slump over the next 18 months, according to analysts, who pointed out that, in the current meltdown so far, financial institutions have written off only $1.3 trillion. The IMF called for a "thorough cleansing of banks' balance sheets of impaired assets, accompanied by restructuring and, where needed, recapitalisation".
The half-yearly report from the IMF is closely studied by markets, and will be discussed by the Group of Seven and Group of 20 economies on Friday.
Peter Dixon, an economist at Commerzbank, said: "This is a bleak number and there is clearly still some way to go, and the banks face much more pain." He added, however: "This number is the worst-case scenario."
The IMF said yesterday that the global financial system "remains under severe stress as the crisis broadens to include households, corporation and the banking sectors in both advanced and emerging market countries".
Of the estimated $4.1 trillion losses for the global financial sector, about two-thirds will be incurred by banks, the IMF said. The rest will come from groups including pension funds, insurers and hedge funds.
It added that the losses taken over the course of the credit cycle were likely to be higher because exposure to equities and derivative positions were hard to value. "In addition, global banks are expected to take an additional $340bn of writedowns on exposure to emerging market assets," it said.
While the majority of the investments are in US instruments, Europe, excluding the UK, is expected to suffer the worst writedowns at $1.11 trillion. This compares with $1.05 trillion in the US. Mr Dixon said the prediction was hugely worrying for European banks as those across the Atlantic had already written down at least twice the value of assets. The UK is estimated to take a writedown of $316bn.
The IMF raised its predicted writedowns for US-originated assets by next year from $2.2 trillion in an update in January to $2.7 trillion yesterday, saying it was "largely as a result of the worsening base case scenario for economic growth". In October, the IMF estimate stood at $1.4 trillion.
The fund said the crucial challenge was to break the downward spiral between the financial system and the global economy.
- 1 I've been called an abusive and dangerous parent, when all I did was listen to my transgender child
- 2 Smartphones are making children borderline autistic, says psychiatrist
- 3 Why this father didn’t hide his daughter’s heroin overdose in her obituary
- 4 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 5 Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
Smartphones are making children borderline autistic, says psychiatrist
Nepal earthquake: More than 1,100 killed across four countries and in Mount Everest avalanche
Nepal earthquake: The race is on to help thousands trapped under rubble around Kathmandu, while remote villages face a long wait for help
Royal baby: Live updates as superbug closes ward at St Mary's Hospital where Duchess of Cambridge is due to give birth
Teaching profession headed for crisis as numbers continue to drop and working lives become 'unbearable'
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...