MercoPress. South Atlantic News Agency

Brown and Sarkozy to call for greater bank transparency

Sarkozy: Tea with the Queen and banks with Brown

British Prime Minister Gordon Brown and French president Nicholas Sarkozy are expected to call on banks this week to issue “full and immediate disclosure of their write-offs” as a consequence of the global credit crunch, according to British sources.

President Sarkozy is scheduled to arrive Wednesday in London for a two days official visit as a guest of Queen Elizabeth II. Brown and Sarkozy are to hold a summit on Thursday, and will use it to pile pressure on the banks in a bid to clarify some of the uncertainty damaging confidence in the current climate that has unsettled international markets as investors speculate on the true value of assets they financed. Bad debts are estimated could reach 600 billion US dollars, five times the sum already written off since November. An official at No 10 said that the two leaders would call for "greater transparency in financial markets and, as a first step, full and immediate disclosure of the scale of write-offs by banks." Brown believes that along with banks becoming more transparent, the watchdog function of the International Monetary Fund (IMF) should be enhanced. The prime minister has long called for the IMF to set up an international surveillance arm to give early warnings of impending financial problems. Crucially, Brown wants the surveillance division to have more independence from the division that makes lending decisions. So far, his proposals have not been taken on board by the other shareholder countries at the IMF. Senior bankers have warned in recent weeks that the disclosed write downs might just be the tip of the iceberg, although it is impossible to estimate the exact scale of the losses with any degree of confidence. "Events in recent weeks, especially the collapse of Bear Stearns, have demonstrated the scale of the problem and the effect on market stability of difficult-to-value assets and of undisclosed losses becoming known in a piecemeal fashion", said an official from PM Brown's office. The collapse of the sub-prime market in the US last summer triggered the current credit crisis which has hit some of the world's leading banks. Among the worst hit were Citigroup, Merrill Lynch and UBS. UBS revealed last week that its chairman had taken a 90% pay cut after the Swiss bank suffered its first full-year loss. It had been forced into write downs of 18 billion US dollars, "almost completely from our exposure to the US residential real estate market through positions in mortgage-backed securities and related structured products". Brown and Sarkozy will also use this week's summit to express concern over the role of credit rating agencies. They will call for transparency over how the agencies operate as well as how they value the assets and liabilities of financial institutions