Investors reeling from world credit problems took fresh hits today as the International Monetary Fund (IMF) said their economic impact would be worse in 2008.
IMF managing director Rodrigo Rato said the United States was likely to bear the brunt of fallout from the credit squeeze and said world economic growth should remain high next year if below 2006 and 2007.
But downside risks increase the longer financial markets remain in crisis, he said. "Credit markets are correcting, but slowly; we aren't at a stage of normality," Mr Rato told a seminar in Madrid.
"It has an effect on the real economy which will be felt more in 2008, with greater intensity in the United States, less in other areas," he said.
More financial firms joined the list of credit squeeze casualties.
Sources said Deutsche Bank looked set to lose up to €1.7 billion in profits from falls in loan values, and there is speculation that a number of hedge funds are circling UK mortgage lender Northern Rock.
Britain's Sunday Telegraphreported that former Goldman Sachs banker Chris Flowers and buyout funds Cerberus and Citadel were planning a breakup of Northern Rock by acquiring its mortgages at below-face value and holding them until maturity.