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By Mike Caggeso
Before the dust settles from the imploding credit market, financial firms in the S&P 500 will have absorbed between $125 billion and $175 billion total in mortgage and credit-related write-downs, an analyst at The Bear Stearns Cos. Inc. (BSC) said.
That means most of the credit carnage is over, as about $115 billion is already in the books, says Jonathan Golub, Bear Stearns' chief investment strategist. Most of that figure came from mortgage-related problems.
The remaining credit-related writedowns of $25 billion to $55 billion Golub foresees will come from other sectors such as student loans, credit cards and auto-loan portfolios.
"The majority of the writedowns are behind us," Golub told CNNMoney. "The banks have taken the majority of the hits to their earnings and now we can move forward."
Merrill Lynch & Co. (MER) and Citigroup Inc. (C) have posted the highest write-down totals in the past two quarters, $22.5 billion and $21.6 billion, respectively, Golub wrote in a research report. His employer, Bear Stearns, took $2.6 billion in write-downs in the second half of 2007.
And when all fourth-quarter figures are added up, Golub predicts expected earnings in the sector to be down 105% compared to the previous year's quarter, as the fincial firms in the index have already lost $593 billion in market value since the end of the third quarter.
While $175 billion is an extraordinarily high figure, more deep losses and write-downs are expected from European banks in the weeks ahead.
That will make for some more doom-and-gloom headlines, but U.S. investors shouldn't panic because the waves hitting European banks now have already come and gone in the United States.
On top of that, Golub believes that European analysts "have been slower to downwardly revise their earnings estimates."
Overall, stock prices of S&P 500 financials have fallen 8.4% year-to-date.
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