Banks face 10-day debt timebomb(ZT)

UK Banks face 10-day Debt Timebomb	meg-abear	NEW 9/10/2007 7:41:14 PM
Banks face 10-day debt timebomb By Iain Dey, Sunday Telegraph Last Updated: 12:02am BST 10/09/2007 Britain'sbiggest banks could be forced to cough up as much as £70bn over thenext 10 days, as the credit crisis that has seized the global financialsystem sparks a fresh wave of chaos. • The credit crunch is really hitting home • Small businesses risk being driven out • Comment: The lottery of London's £70bn rollover week Almost20 per cent of the short-term money market loans issued by Europeanbanks are due to mature between September 11 and September 19. Seniorbankers fear that they will have to refinance almost all of these debtswith funds from their own coffers, putting a further strain on bankbalance sheets. Tens of billions of pounds of these commercial paperloans have already built up in the financial system, becausefear-ridden investors no longer want to buy them. Roughly £23bn ofthese loans expire on September 17 alone. Fears of this impendingcall on bank credit lines are the true reason that lending betweenbanks has ground to a halt, according to senior money market sources. Bankshave been stockpiling cash in preparation for this "double rollover"week, which sees quarterly loans expire alongside shorter term debts -exacerbating a problem that lies at the heart of the credit crisis. "Banksare hoarding cash," said David Brickman, the head of European creditstrategy at Lehman Brothers. "We think the reason for that is thecommercial paper markets. There was $100bn of commercial paper issuedby European institutions that was scheduled to roll over in August,much of which struggled to do so. "Those markets are just notfunctioning normally, so some debt has already come on to bank balancesheets and more will have to follow. We estimate that between September11 and 19 $139bn [£68.5bn] of European commercial paper [will come] upfor renewal, including monthly and quarterly maturities. That's whybanks are hoarding cash." Mervyn King, the governor of the Bank ofEngland, last week made his first intervention in the money marketssince the credit crisis began, pledging to inject £4.4bn into theovernight lending system if required. DeAnne Julius, a former memberof the Bank's Monetary Policy Committee, told The Sunday Telegraph:"The Bank has a responsibility to allow the smooth functioning of thesterling money markets and it has a pretty clear framework for doingthat. But it needs to apply that framework to achieve the objectives itis aiming at. The experience of the last couple of weeks does not lookas if it [the Bank] has been very successful at that." Although themarkets have viewed King as reluctant to bail out irresponsiblelenders, the BoE has not ruled out further interventions. But seniorbankers say King is unsure that pledging funds over a three-monthduration would solve the liquidity crisis. He is said to share the viewthat the root of the liquidity problem lies in the commercial papermarkets. Market sources believe confidence will be restored only when all the sub-prime losses in the system have been exposed. ChristopherWood, the strategist at Hong Kong-based brokerage CLSA Asia-PacificMarkets credited with predicting the US sub-prime crisis two years ago,said: "The sub-prime crisis has exposed the structured credit assetclass as highly dubious. In five years' time it won't exist." http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/09/cndebt109.xml