US banks hit by Mexican fears spacey

The eye of the Mexican storm centred on its banking system yesterday. News that the country's bank insurance fund had made emergency loans to some banks unable to repay maturing short-term credits to foreign lenders spread fears of defaults hittin g international banks.

Shares in the big New York banks fell, and Citicorp's chairman John Reed was at pains to spell out that its results for the latest quarter had not been significantly affected by the crisis. President Clinton's assistant for economic policy, Bowman Cutter, reassured an audience of bankers that Mexico was ``fundamentally sound''.

Figures published by the Bank for International Settlements today show Mexico's short-term bank borrowing at $28.4bn at the end of June 1994. Loans by international banks to the Mexican banks stood at $16bn.

The Mexican banks are thought to owe about $8bn on short term certificates of deposit. Rumours are rife that lenders are refusing to roll these over - and the bail-out by the insurance funds lends them substance.

Ingrid Iversen, Mexican analyst at Morgan Grenfell, said: ``These are big numbers for Mexico, but small in the grand scheme of things. The reaction today has been slightly hysterical.'' However, Peter Cardillo, director of research at Westfalia Investments in New York, said: ``Some of the big money centre banks got trashed because of the situation in Mexico.''

Chemical Bank has been the only one to admit to a Mexican problem, a one-off loss that it said was due to unauthorised trading by an employee in New York.

Mr Reed said Citicorp had not suffered any serious problems because of Mexico, and did not anticipate any in future. Citibank is the only US bank to have branches in Mexico. Together with JP Morgan, it is putting together the commercial banks' contribut i on to the $18bn international rescue package.