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Sun 14 Dec 2008 04:00 AM

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Governments splash out as writedowns mount

Countries injected billions to shore up financial systems as investment banks posted heavy losses due to subprime exposure.

It has been a big year for investment banks – but for all the wrong reasons. As a result, governments around the world have been shelling out massive emergency bailouts as never before, in a bid to keep their economies functioning and offset the credit squeeze.

In October, the UAE injected $19bn into the banking system in the wake of America’s $700bn rescue package. Many other countries such as Russia and South Korea also moved to shore up their financial systems, with $26bn and $130bn handouts, respectively. Dutch investment bank ING received $19bn alone from its government.

Withstanding bailouts, banks have still posted huge losses this year.

Swiss investment bank Credit Suisse said at the start of the month it was cutting 11 percent of its workforce or 5,300 employees after posting a loss of $2.5bn in October and November. Add this to the billions that have been written down over the last year by other investment banks like Citigroup and UBS (not to mention the collapse of Lehman Brothers and the Bank of America takeover of Merrill Lynch in September), and these institutions’ exposure to toxic subprime mortgage debt has been laid bare. Comparatively Credit Suisse has done far better than its rivals. It escaped heavy subprime losses by reducing debt before the slump began last year. UBS, by contrast, has racked up losses almost four times larger than that of its rival, to the tune of around $10bn.

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