A dearth of bank credit risks exacerbating Britain's recession, regulators warned on Monday, as British Prime Minister Gordon Brown vowed to reform banks' bonus culture held partly responsible for the financial crisis.
Britain's Barclays Plc said bonus payments would almost halve for 2008, while Italy's UniCredit SpA was set to raise additional capital from Libya as it sought to fill a gap in its capital-raising programme.
As regulators and bank executives grapple with the credit crunch, UK regulator the Financial Services Authority (FSA) said Britain is at risk of a deeper-than-expected recession because of the shortage of bank credit.
"The risks are weighted to the downside and, while the effects of fiscal stimulus and monetary easing remain unclear, the recession may be deeper and more prolonged than expected," the FSA said.
Meanwhile Brown, seeking to head off public anger over bankers' bonuses, pledged to end rewards for failure but stopped short of banning bonuses at banks which have received state backing — despite a senior figure in his ruling Labour Party saying such rewards would be "economically and politically outrageous".
His comments came after reports that state-backed Royal Bank of Scotland may pay out 1.0 billion pounds ($1.5 billion) in bonuses even though it has just posted the biggest-ever loss for a British company.
OLD CULTURE
"We are leading the way … in sweeping aside the old short-term bonus culture of the past and replacing it first of all with a determination that there are no rewards for failure," Brown said in a speech in London.
Banks around the world have come under pressure to slash this year's bonuses and U.S. President Barack Obama described reported Wall Street bonuses of $18 billion as "shameful" and the "height of irresponsibility".
Britain's Chief Secretary to the Treasury Yvette Cooper said senior bankers had a moral responsibility to reject their bonuses this year if they lost money during the credit crunch.
However Cooper said it would be difficult to compel banks to scrap all bonuses because some staff have extra payments written into their contracts.
Barclays said bonuses across the group for 2008 would be down 48 percent from 2007, with the fall in investment banking arm Barclays Capital and fund manager Barclays Global Investors bigger than that.
Barclays posted a 14 percent drop in yearly pretax profit to 6.1 billion pounds ($9 billion), topping the average forecast of 5.8 billion from 13 analysts polled by Reuters Estimates. Its shares rose more than 10 percent.
Meanwhile Libya's envoy to Italy told Reuters Libya's central bank had agreed to buy an additional 250 million euros ($322.7 million) of UniCredit's convertible bonds to help plug a shortfall in the bank's 3 billion euros capital-raising efforts.
UniCredit shares added more than 4 percent.
OFFICIAL EFFORTS
Banks worldwide are struggling to escape from the effects of the credit crunch and Credit Suisse last week predicted the industry would need to raise another $800 billion in additional capital.
In Norway a 100 billion crown ($14.6 billion) package to boost lending lifted share prices. DnB NOR, Norway's biggest banking group, rose as much as 9.4 percent and other financial groups gained though none has so far said it would take part in the package.
Other official efforts to aid the banks sector continue to take shape and EU Monetary and Economic Affairs Commissioner Joaquim Almunia said European Union finance ministers need to agree on the treatment of toxic financial assets.
"Irrespective of whether action takes the form of a bad bank or an insurance scheme, what matters first and foremost is that we agree on which assets will be eligible and how to value them," Almunia wrote in the Wall Street Journal ahead of a meeting of the bloc's finance ministers on Tuesday.
EU Internal Market Commissioner Charlie McCreevy said banks will face additional rules on setting aside capital to cover risk.
In Paris loss-making bank Natixis denied a newspaper report it needs a fresh injection of capital but reiterated it was a candidate for part of a second tranche of bank aid from the French state.
"There is no urgent need for a new injection of capital. It's a false rumour," a company spokesman said on Monday in response to an article in French business daily Les Echos.
Barclays said it expected 2009 to be another challenging year, with credit market losses set to shrink but bad debt charges likely to rise as recession takes its toll.
"2009 will be another tough year. In 2008 we've had a crisis in the banking system; the principal issue for 2009 is going to be rapid economic slowdown, in a sense more a familiar but nonetheless (a) pretty brutal slowdown in economic growth all around the world," said Barclays Chief Executive John Varley.
