Major finance houses went some way on Wednesday to reassure investors that after months of credit market havoc, fallout from the U.S. subprime mortgage meltdown is containable.
But the International Monetary Fund said lending by pan-European banks could be further curtailed by the credit crunch and damage economic growth.
There is a significant risk that the ability to lend by pan-European banks will take a sharp knock and lead to significant slowdown in growth, said Michael Deppler, head of the IMF's European department.
Europe's biggest bank HSBC Holdings said its third quarter profit was up on last year despite increasing its bad debt charge on U.S. consumer finance business to $3.4 billion.
UniCredit, Italy's biggest bank, reported an underlying 19 percent rise in third-quarter net profit, although investment banking profits fell by 215 million euros to 123 million euros as a result of the credit crisis.
In the United States, Bear Stearns said it expected to write down $1.2 billion of assets linked to mortgages in the fourth quarter, resulting in an overall loss, but Chief Financial Officer Sam Molinaro said the worst of its mortgage write-downs was behind it.
Bear Stearns suffered the collapse of two hedge funds and asset write-downs this summer, linked to precipitous declines in subprime and other mortgages.
HSBC chairman Stephen Green was cautious, telling reporters: There's been a broader deterioration of the housing market and associated credit, but I don't think anybody knows if we've reached the bottom.
But markets took the view that the news from all three banks could have been far worse -- Bear Stearns shares climbed 7 percent in early trade, HSBC shares rose 2.9 percent while UniCredit was up nearly one percent.
Banks including Citigroup, Merrill Lynch and UBS have announced colossal losses amounting to about $45 billion in recent weeks after a meltdown in securities linked to U.S. subprime mortgages -- loans made to borrowers ill-equipped to repay them.
But U.S. bank shares soared on Tuesday and continued to climb on Wednesday.
Goldman Sachs Group's chief executive said on Tuesday he did not expect to take any significant write-downs.
And while Bank of America Corp, the second-largest U.S. bank, said it expected to write down $3 billion of debt in the fourth quarter, its shares also rose -- an indication that investors now see the glass as half full, not half empty.
People are getting comfortable with the view that this second round of writedowns may be the beginning of the bottom, said Owen Fitzpatrick, head of U.S. Equity Group at Deutsche Bank Private Wealth Management in New York.
NO END YET
Markets were first gripped by a credit crunch in August when interbank lending dried up as banks realized they did not know which of them was dangerously exposed to shaky U.S. home loans.
With precarious U.S. mortgages bundled up into complex financial products and sold on around the globe, uncertainty lingers about where the exposure lies although a raft of bank results reports have shed some light.
Bank of England Governor Mervyn King said risks clearly remained, particularly given that stock markets have not headed south as a result of the crisis.
It's very striking that despite developments we've seen in the last three months, equity prices are on average higher now than they were in August, King told a news conference after releasing the bank's quarterly inflation report.
There must be some downside risks there. That's factored into our projections. That's the bigger risk to the global economy, he said.
Wreckage across the corporate world is far from over.
Mizuho Financial Group Inc, Japan's second-largest bank, posted a 17 percent drop in first-half profit on Wednesday and its brokerage arm booked subprime-related losses, forcing it to cut its full-year forecast by 13 percent.
And Countrywide Financial Corp, the largest U.S. home loan lenders, reported on Tuesday its mortgage loan volume fell 48 percent from a year earlier although it said credit quality had begun to stabilize as it cut riskier home loans.
(Editing by Stephen Nisbet)