THE GLOBAL credit crunch continued to bite yesterday, with Citigroup, the world's biggest bank and the largest foreign bank employer in Ireland, announcing massive losses and job cuts, writes Simon Carswell, Finance Correspondent
As Citibank became the latest lender to announce further large subprime-linked losses, the governor of the Central Bank, John Hurley, once again asserted that Irish financial institutions remained robust and capable of absorbing shocks. His reassurances came as more Irish banks yesterday put up their interest rates on mortgages and cut back on lending.
Mr Hurley said the Central Bank and the Financial Regulator have regularly stress-tested the Irish banking sector and found that it can weather a significant slowdown.
Yesterday's news that 9,000 jobs are to be cut from Citibank's global operations, after it made a loss of $5.1 billion (€3.2 billion) in the first three months of the year, was seen by the markets as a sign that an end to the credit crunch may be in sight as banks own up to the full extent of the bad loans on their books.
Shares rose on US and European markets after the bank announced it had written off $15.2 billion on credit crunch-related losses, and on risky assets.
Yesterday's write-downs were the second large loss by the bank and its second round of layoffs. It made a $9.8 billion loss in the final three months of 2007 and announced 4,200 job cuts in January.
The bank employs more than 2,000 people in Dublin and Waterford. A spokesman for the bank said: "It would be inappropriate to speculate on the local nature of the jobs cuts." However, he added that the bank's Irish operations were among its fastest growing and were a very significant part of its business.
The group has a global workforce of 369,000 staff.
The continuing global financial crisis has forced banks worldwide to write off more than $200 billion. The Paris-based think-tank, the OECD, predicts that subprime losses and write-offs would total between $350 billion and $420 billion.
The credit crisis and higher bank costs are continuing to force Irish banks to increase their mortgage rates and introduce changes.
Yesterday, Permanent TSB increased its rates on tracker mortgages, on which customers pay a margin over the European Central Bank base rate of 4 per cent.
The rates will increase by 0.2-0.25 per cent from the end of next month, but in some cases could rise by up to 0.45 per cent. This follows increases by Bank of Scotland (Ireland), Ulster Bank and its subsidiary, First Active.
The credit crunch has pushed rates up by an average of 0.35 per cent since January, adding about €75 every month to the cost of a €300,000 mortgage.
Lenders have also tightened lending with most mainstream lenders only offering 100 per cent mortgages to certain professionals and civil servants with guaranteed future earnings. Most lenders are now seeking cash deposits of at least 10 per cent of the value of the property before approving a mortgage.
The rising cost of bank funding continues to erode bank profits. Tracker rates have increased because the ECB rate is no longer seen by Irish banks as a relevant gauge, given the high rates which banks pay for their own funding.
The broker market, which accounts for one in every two mortgages sold in Ireland, is also coming under pressure due to the changes in the market. Ulster Bank said it would be withdrawing from the broker market from May 30th.