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UPDATE: Worsening Credit Crunch Pressures British, U.S. Banks

By Jonathan Burton

SAN FRANCISCO (Dow Jones) -- The subprime crisis wreaking havoc among global banks and brokerages could turn a harsh spotlight on two U.K. banking giants this week, while a group of major U.S. banks will propose a fund aimed at adding stability to the credit markets, according to reports Sunday.

In the U.K., HSBC Holdings Plc (HBC) and Barclays Plc (BCS) , like other financial institutions, have been grappling with their exposure to shaky mortgage loans. Already, companies including Merrill Lynch & Co. Inc. (MER) and Morgan Stanley (MS) have written-down the value of billions of dollars worth of dodgy borrowing, and the crunch is likely to test the balance sheets and capital strength of other creditors before conditions improve, analysts say.

"This credit crisis is unlike anything we've ever had before," said Bernard Baumohl, managing director of New Jersey-based forecaster The Economic Outlook Group. "It involves complicated securities that include derivatives, and nobody really has a clue about their worth or how to price them."

The mounting uncertainty has hit Barclays' stock price especially hard, with its U.S.-traded shares losing 27% in the past four weeks. Speculation that the company might have to write down as much as $10 billion in underperforming subprime debt depressed Barclays' shares on Friday, and the London Stock Exchange temporarily suspended trading in the stock after it lost more than 9%.

Barclays publicly denied the write-down rumors on Friday, but an unattributed report in the Sunday Times said the bank is working with its auditor PricewaterhouseCoopers to provide a review of its performance when it releases its trading statement Nov. 27.

Barclays doesn't usually provide financial figures with its trading statements. It is taking the untraditional step in an effort to quell market speculation about its possible exposure to subprime loans, the report said.

Barclays couldn't be reached immediately for comment.

Separately, HSBC is likely to announce another round of write-downs for bad loans related to its U.S. subprime business, the Independent on Sunday said without naming sources.

Derek Chambers, banking analyst at Standard & Poor's Equity Research, said in the British newspaper's report that he thought people "were being too sanguine about HSBC."

HSBC's first-ever profit warning came in February, when a $10.6 billion gap in the group's U.S. subprime business was revealed.

A separate report in the Sunday Telegraph said the bank would write-down about $1 billion.

HSBC couldn't immediately be reached for comment. U.S.-listed shares of the banking giant are off almost 10% in the past four weeks.

Meanwhile, The New York Times reported that U.S. banking leaders Bank of America Corp. (BAC) , Citigroup Inc. (C) and J.P. Morgan Chase & Co. (JPM) have agreed after two months of negotiations on how to structure a fund to help stabilize the credit markets

The newspaper, citing a person involved in the negotiations, said the fund could involve at least $75 billion, would be a simplified version of earlier proposals, and could be in operation by year end.

(END) Dow Jones Newswires

November 11, 2007 22:30 ET (03:30 GMT)


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