Top bankers deny credit failure

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Leading UK bank bosses have denied they contributed to the global credit crisis by sanctioning trading in risky mortgage-backed investments.

Defending the huge losses many banks have incurred from US sub-prime deals, top bosses told MPs their financial practices had not been "reckless".

Directors from Citigroup, UBS, Deutsche Bank and Goldman Sachs said they could not have foreseen the credit crunch.

But MPs said they were "in denial" about the scale of mounting losses.

'Too risky?'

The banking industry's financial exposure to US mortgage-related debt - whose value has plummeted as the housing market has slumped - runs into many billions of dollars.

The heads of Merrill Lynch and Citigroup, two of the world's largest banks, resigned last month after both revealed escalating losses from such investments.

But appearing before the Treasury Select Committee, bank bosses said these losses had been caused by wider problems in the US economy and not the banks' actions.

It seems you are flying in the face of reality John McFall MP

"The events we have seen over the last few months are the result of things which have happened in the economy....things which are not the fault of bankers." said Lord Aldington, chairman of Deutsche Bank London.

MPs, who are looking into the state of financial markets in the aftermath of the Northern Rock crisis, said banks had become involved in "opaque" and "complex" trading in mortgage-related debt whose risks they did not understand.

"It seems you are flying in the face of reality", John McFall, Labour chairman of the committee, told them.

Proper practice

Bank directors acknowledged that their risk assessment models - used to govern investment in key areas - could have been "reviewed further" but denied any mismanagement in the sale of sub-prime related products such as collateralised debt obligations (CDOs).

"We don't believe we were reckless," said William Mills, chief executive of Citigroup's European markets and banking division.

"I believe we gave all the appropriate disclosures and we were dealing with what we thought were sophisticated institutions."

Despite the size of losses in major institutions, none of them appear to be threatening the viability of these institutions Gerald Corrigan, Goldman Sachs

Banks did not anticipate the scale of the liquidity crisis, he added, particularly the speed with which wholesale financial markets - which banks use to tap for funds - would dry up.

The full extent of the fallout from the US sub-prime crisis is far from clear.

This has caused extreme volatility on stock markets in recent months as analysts worry that some banks might be sitting on even greater losses.

Jeremy Palmer, chief executive of the European investment banking arm of UBS, said the picture would become clearer next year when banks issue full-year results.

But he said he believed the financial impact of the crisis was "fairly well contained".

"Despite the size of losses in major institutions, none of them appear to be threatening the viability of these institutions," added senior Goldman Sachs executive Gerald Corrigan.