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By Sinead Cruise and John O'Donnell
LONDON/BERLIN (Reuters) -Global banks are taking steps to weather the wider impact of war and runaway inflation as the stream of central bank money that kept them afloat for more than a decade is switched off.
But if policymakers are hoping banks will help avert recession by turning on their own lending taps, they could be disappointed, bankers, analysts and investors told Reuters.
Banks are having to quickly get to grips with a sharp rise in the risk of doing business as corporate and retail borrowers juggle higher loan costs with soaring costs.
Meanwhile, Russia's invasion of Ukraine has pushed Europe to the brink of recession and triggered losses for banks including France's Societe Generale and Austria's Raiffeisen.
French bank Credit Agricole and Italy's UniCredit have also provisioned against war-related losses but the effects, while felt most strongly in Europe, are rippling around the globe.
"The war, and its impact on price inflation, is a game changer," Carsten Brzeski, an economist at Dutch bank ING, said, adding: "Consumers will take years to recover their spending power, lost to inflation. And companies will be hit as well".
What is troubling some investors is that cracks are already starting to show in bank balance sheets, with results showing the capital cushions of JP Morgan, Barclays, HSBC, Morgan Stanley, Bank of America, Credit Suisse and Citi all dwindled in the first three months of 2022.
A protracted end to a 40-year bull run in bonds has sparked painful losses for many banks, while others are also racking up problem debts after pandemic lockdowns which crippled global trade and shuttered thousands of businesses worldwide.
Some banks have scrapped plans to buy back cheaply-valued stock in view of their capital slippage, despite posting healthy investment banking profits helped by volatile financial markets.
"We expected huge buybacks then suddenly these were cancelled or moderated," said Barrington Pitt Miller, chief investment officer of Wykeham Overseas Advisors.
"People thought the big banks were sitting on huge excess capital positions ... that dynamic is now in shreds," he said.
LOSING INTEREST
While rising interest rates should in theory be good news for banks, which can normally increase their margins and therefore their profits, the situation is not so clear-cut in 2022.
The Federal Reserve's historic 50 basis point (bp) rate hike on Wednesday signalled that the world's biggest economy is more worried about inflation than stalling growth.