Friday, September 19, 2008

Still there is still plenty of worry in the Global Financial Market

Wharton Professors Franklin Allen thinks there is still plenty of worry -- to go around. The real risk now is overseas, particularly in Europe," according to him. He foresees potentially enormous problems with "big banks in small countries," such as Belgium and the Netherlands. "Fortis [Bank] will come under scrutiny in the next few weeks," he noted, referring to a Belgian-Dutch bank which saw profits for the first half of 2008 fall by 41% compared to the same period of 2007, according to a recent report from the BBC. The performance was blamed on the crashing global credit markets and the bank's own bad loans.

That might turn out to be a blip if things turn sour for Switzerland's two big banks, UBS and Credit Suisse, he suggested, adding that the value of the assets held by those banks is six times the gross domestic product of their home country. "If they have a big problem, the Swiss government cannot bail them out." And If Swiss banks -- traditionally conservative safe havens for international finance -- hemorrhage, a cascade effect across the global markets could have implications that are impossible to assess. Said Allen: "Hopefully it won't happen. But that's the worrying thing."

View expressed by Prof Allen in a panel discussion

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