Lloyd's of London pulls out of European banks amidst fear of worsening debt crisis

LONDON: Lloyd's of London, the world's oldest insurance market, has pulled deposits from European banks on concerns that governments may be unable to support lenders in a worsening debt crisis, Finance Director Luke Savage said.

“There are a lot of banks that, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Savage said on Wednesday in a telephone interview.

“If you're worried the government itself might be at risk, then you're certainly worried the banks could be taken down with them.” European banks are trying to reassure investors and customers they have enough cap-ital to withstand a default by Greece and slowing economic growth caused by governments' austerity measures.

Siemens AG, Europe's biggest engineering company, withdrew short-term deposits from Societe Generale SA, France's second-largest bank, in July, a person close to the matter said on Tuesday.

Lloyd's, which holds about a third of its £2.5 billion of central assets in cash, has stopped depositing money with some banks in Europe's peripheral economies, Savage said, declining to name the countries or institutions.

“We have a very conservatively positioned balance sheet,” Savage said. Lloyd's also holds about a third of its assets in mainly US and UK government bonds and a third in corporate bonds, he said.

The insurance market, founded in a London coffee house in 1688, swung to a £697-million ($1.1 billion) pretax loss in the six months to June 30 after the most expensive first half for natural disasters on record, including the Japan tsunami and earthquake.

The market made a profit of £628 million in the same period a year earlier, the Londonbased market said in a statement on Wednesday.

“These are tough times for the insurance industry, but we are well positioned to handle them,” Chief Executive Officer Richard Ward said in the statement. “While interest rates are low and equity markets are volatile, we can't rely on investment income to subsidise our underwriting. We must decline under-priced risks.”