BANKS' SUBPRIME LOSSES EXCEED $500 BILLION AS WRITEDOWNS SPREAD
Banks' losses from the U.S. subprime crisis and the ensuing credit crunch crossed the $500 billion mark as writedowns spread to more asset types.
The writedowns and credit losses at more than 100 of the world's biggest banks and securities firms exceeded $501 billion after UBS AG reported second-quarter earnings today, which included $6 billion of marks on subprime-related assets.
The International Monetary Fund in an April report estimated banks' losses at $510 billion, about half the total for all companies. Predictions have crept up since then, with New York University economist Nouriel Roubini forecasting losses to reach $2 trillion.
``It just keeps spreading from one asset to another, so it's hard to know when these writedowns will stop,'' said Makeem Asif, an analyst at KBC Financial Products in London. ``The U.S. economy needs to stabilize first. But even then, Europe could lag and recover later. There's still a lot more downside.''
Auction-rate securities have begun adding to the losses as regulators and prosecutors force banks to buy back bonds they'd sold to clients as safe investments. UBS set aside $900 million to cover potential losses from repurchasing the securities, while Citigroup Inc. and Wachovia Corp. estimated losses from the buybacks at $500 million each.
The collapse of the U.S. subprime mortgage market has saddled banks worldwide with losses from declining values of securities tied to all types of home loans and commercial mortgages as well as leveraged-loan commitments.
Banks and brokers have raised $353 billion of capital to cope with the writedowns, according to data compiled by Bloomberg. The gap between the losses and capital infusions, which stands at $148 billion, has regularly narrowed to about $80 billion as capital raising follows writedown announcements.
August 12, 2008
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