Eurobanks may take months to reveal subprime woes

By Andrew Hurst, European Banking Correspondent

ZURICH, Aug 13 (Reuters) - European banks may take months to reveal the full extent of their exposure to risky U.S. subprime mortgages and other asset-based securities, possibly causing fears to persist of a credit crunch.

"The main problem for banks is trying to calm markets and pull themselves out of a downward spiral," said Simon Adamson at Creditsights in London.

Some measure of confidence returned to markets on Monday as short-term borrowing rates eased and central banks were stepping into markets to smooth funding. Stocks recovered after a two-day sell-off late last week.

The Dow Jones European bank index .SX7P was up 2.6 percent by 1325 GMT on Monday, rebounding after declines on Thursday and Friday and outperforming the FT Eurofirst index FTEU3 of top 300 European companies which was up 2.1 percent.

But fears have not yet receded that liquidity could dry up and hit routine lending, as investors rush to ditch investments linked to U.S mortgage markets but struggle to find buyers because of doubts as to the true value of these risky assets.

"The main danger is that these things become a self-fulfilling process. You have fear and because liquidity dries up it becomes more difficult to value securities," said Adamson. "But you will get to a stage where some investors will see value."

BNP Paribas (BNPP.PA) last week froze three funds, saying that the disappearance of liquidity as a result of the subprime turmoil made it impossible to value the underlying assets.

"I think it is quite hard for banks to disclose all of their positions," said an analyst with a French bank. "There is quite a lot of uncertainty about whether the way banks are valuing their assets is reasonable."

MORE BAD NEWS TO COME?

Meanwhile news of more fallout for European lenders from the subprime crisis continues to flow.

BNP Paribas (BNPP.PA), Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE) were named by U.S. mortgage group HomeBanc Corp HMBN.PK as being among its creditors after HomeBanc filed for Chapter 11 bankruptcy protection. BNP and Commerzbank said on Monday their exposure is small and secured.

Deutsche Postbank (DPBGn.DE) said at the weekend it had taken onto its books 600 million euros ($821.8 million) in exposure to two investment vehicles run by hard-hit German peer IKB (IKBG.DE) and up to one-third of the exposure could be linked to subprime.

Investors say the reporting of third-quarter results - up to three months away for most European banks but sooner for U.S. investment banks which close quarterly books at the end of August - could bring a fresh wave of subprime-related disclosure.

"I am sure we will have more choppiness and there will be some more bad news along the way," said a senior London-based analyst with a leading British bank.

Analysts said they were still working out what the full implications were of the credit market turmoil. "I don't think the market has made up its mind yet whether this is a credit crunch and not just a liquidity crisis," said a banking analyst with a European bank in London, who asked not to be identified.

Banks, which had been originating structured finance vehicles and distributing them among investors, were having to keep them on their own books as the appetite for risk dries up.

"Banks are holding a lot of stuff on their balance sheets they used to originate and distribute," said the analyst. "This increases the amount of risk-weighted assets that are needed and puts pressure on capital ratios. The world has to decide whether this will lead to a credit crunch."

((Reporting by Andrew Hurst; Editing by David Cowell;

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