U.S. Reports Grim Data, EU Vows to Shield Economy

By Reuters -  |  Posted 2008-10-16

NEW YORK (Reuters) - Major U.S. banks reported huge losses and other companies painted a grim outlook for the battered U.S. economy on Thursday as European leaders vowed to shield their industries from the global crisis.

French President Nicolas Sarkozy, representing the EU on the world stage, said he would meet U.S. President George W. Bush on Saturday to push for an overhaul of the international financial system.

U.S. investment bank Merrill Lynch reported net write-downs of $5.7 billion from toxic assets and Citigroup reported a quarterly net loss of $2.8 billion.

Famous motorcycle maker Harley-Davidson Inc said a slowdown in sales had spread from the United States to Europe and cut its earnings forecast for the year.

U.S. industrial production posted its biggest drop in 34 years in September, and a volatile Wall Street fell nearly 4 percent.

European stocks were down 4 percent.

A Reuters poll of economists said the world's richest nations are in or close to recession, with a sharp deterioration in the outlook for the United States.

In Brussels, EU leaders said they were determined to take whatever steps necessary to support jobs and the economy, and Sarkozy said the auto sector may need help given that the United States was making cheap loans to its carmakers.

"If we can bring coordinated answers to the financial crisis, can we not bring coordinated answers to the economic crisis?" Sarkozy asked.

Central banks in Europe renewed efforts to free up liquidity and unblock frozen lending, with further action from Switzerland, Britain and the European Central Bank.

Switzerland's two largest banks -- UBS and Credit Suisse -- became the latest to say they were receiving emergency funding as the country's government and other investors moved to shore them up.

Japan's prime minister, Taro Aso, said Washington may need to push yet more cash into its banks to restore investor confidence, shattered by a crisis that began with a U.S. housing market collapse and now threatens economies worldwide.

"The markets are selling off stocks because investors still think the steps by U.S. authorities are not sufficient," Japan's Aso said.


The European Central Bank said it would provide up to 5 billion euros ($6.8 billion) to Hungary to pump up liquidity.

And the International Monetary Fund was in talks to find ways to help Ukraine's economy.

The rates banks charge each other for loans mostly fell on Thursday in response to radical moves by central banks to provide liquidity, shore up banks and loosen credit lines to institutions needing cash.

The Bank of England said it would create two new facilities for banks to access funds beginning next week, which should remove the stigma that has become attached to using its emergency lending system.

The ECB will allow banks to swap a larger range of their assets for central bank funds and offer more funds across a range of currencies in a new salvo to combat the crisis.

But their actions mean commercial banks do not have to go to each other for cash.

"The only provider of liquidity now is the central bank," said Guillaume Baron, strategist at Societe Generale in Paris.

Governments around the world have pledged $3.2 trillion in emergency measures, including taking stakes in banks to help them stabilize.


European leaders also gave their backing for an overhaul of the world's financial system, which was set up in Bretton Woods, New Hampshire, in 1944.

France, Germany and Britain on Wednesday called for leaders of the Group of Eight major industrialized countries to gather next month with the heads of emerging economies to discuss the 64-year-old financial architecture.

In the banking industry, UBS said it would receive a capital injection of 6 billion Swiss francs ($5.3 billion) from the government and would unload up to $60 billion of illiquid securities and other assets from its balance sheet to a separate fund entity under an agreement with the Swiss National Bank.

Credit Suisse, which announced a third-quarter net loss of about 1.3 billion Swiss francs, with 2.4 billion francs of fresh write-downs, said it would raise funds from investors including the Qatar Investment Authority, already a major shareholder.

Investors' overall focus, however, appeared to be shifting from the ravaged financial system to a declining world economy.

Underlining this, Germany on Thursday slashed its forecast for 2009 economic growth to 0.2 percent from 1.2 percent, citing the global financial crisis.

In Japan, meanwhile, a Reuters poll showed manufacturing business sentiment hit a six-year low this month.

(Additional reporting by Reuters bureaus around the world; Editing by Brian Moss and Steve Orlofsky)