CREDIT WRAPUP 2-Reinsurance giant takes hit, market jitters back
(Recasts, adding downgrade of Citibank shares, money market rates)
By Mike Peacock
LONDON, Nov 19 (Reuters) - The world's largest reinsurer reported on Monday a $1 billion hit from the subprime mortgage crisis as the head of Germany's biggest bank said market jitters had returned with a vengeance.
The scramble to find a buyer for stricken British mortgage lender Northern Rock NRK.L, meanwhile, showed little sign of reaching a resolution.
Swiss Re (RUKN.VX) said it expected a 1.2 billion Swiss franc ($1.07 billion) write-down from exposure to credit default swaps, sending its shares diving eight percent and making it the first reinsurer to suffer major damage from the crisis.
The losses stemmed from protection Swiss Re sold to a client against a fall in the value of a portfolio.
Severe ratings downgrades by credit ratings agencies and the lack of a liquid market for the securities "has resulted in a significant and material reduction of the value of the underlying assets", Swiss Re said.
The head of Deutsche Bank (DBKGn.DE) said financial market nerves had been stretched taut again following recent write-downs at a string of major U.S. banks.
"The latest announcements of further and in some cases significant write-downs at a number of U.S. banks as well as the ongoing uncertainty about losses for some market players who haven't yet outlined their numbers have increased nervousness noticeably," said Josef Ackermann.
Top banks including Citigroup, Merrill Lynch and UBS have announced colossal losses and write-downs in the past month.
Goldman Sachs put Citibank's shares on its "sell list" on Monday. America's largest bank said earlier this month it expected to write off up to $11 billion in the fourth quarter.
Goldman said it was assuming a $11 billion write-off in the fourth quarter and an additional $4 billion early next year.
Markets were edgy, in contrast to last week when the series of bank write-offs were generally greeted by rallies in their shares on the basis that at least the damage was known.
On the money markets, interbank lending rates rose, with two- and three-month sterling rates both at their highest levels in two months as traders continued to pay a premium for short-term funding.
"Markets are in depressive mood," said Justin Urquhart Stewart of 7 Investment Management.
With subprime U.S. mortgages -- lent to people ill-equipped to pay them back -- bundled up into complex financial products and sold on around the globe, uncertainty about where the exposure lies remains intense.
"ROCK" IN A HARD PLACE
Northern Rock shares fell over 20 percent to a new low after the bank said interest from potential suitors valued it at "materially" below Friday's share price.
The lender was forced to go to the Bank of England for emergency loans two months ago, as the global squeeze on credit markets caused its funding strategy to collapse, prompting the first run on a British bank since the 19th century.
The British government said it may offer financial help to potential rescuers, even though this would need to be approved by the European Union.
None of the parties involved has disclosed how much money it has borrowed so far, but informed estimates, based on Bank of England data, put it at about 25 billion pounds ($51 billion).
Minneapolis Federal Reserve Bank President Gary Stern said he expected U.S. housing to weaken further because of a large pool of unsold homes overhanging the market.
"The adjustment in the housing market has still some way to go. The reason I say that is because of the huge inventory of unsold homes," Stern told reporters in Singapore.
"I would expect new home building to remain quite constrained. It is also true foreclosures will go up rather than down over the next several quarters," he said.
But Japan's prime minister did not see the deepening U.S. housing slump and credit crisis triggering a global recession.
"I believe at the end of the day, this problem will disappear," Yasuo Fukuda told CNN.
Germany's Economy Ministry said its economic upturn should continue but at a slower pace due to increased risks from U.S. mortgage woes, the strong euro and high oil prices.
