Start the conversation
By Jennifer Yousfi
A credit crisis that is no longer contained to just the subprime market may lead to an additional $203 billion in write-downs according to a recent research note from UBS AG (UBS) analyst, Philip Finch.
"The problem is broadening from just subprime CDO write-downs to potentially a much bigger credit problem" that may spread to prime mortgages, credit cards and commercial real estate, Finch's note read.
The $203 billion estimate is a worst-case scenario that is based on the big bond insurers MBIA Inc. (MBI) and Ambac Financial Group Inc. (ABK) losing their AAA ratings. But even if the bond insurers are able to maintain their ratings [and their solvency], UBS is still predicting an additional $123 billion in write-downs.
This is bad news for a global financial market that is trying to stabilize after enduring $152 billion in write-downs.
"You don't have a recovery until you have the financial system stabilized," Meredith Whitney, an analyst at Oppenheimer (OPY), said in a research report. "As the banks are trying to recover they will not lend. They are all about self-preservation at this time."
Banks have been unable to sell loans to hedge funds and mutual funds as they normally would, making the financial institutions leery of increasing to a loan portfolio that is losing value and increasingly difficult to sell.
With banks unwilling to lend, and liquidity becoming scarce, investors worry that it will be harder for the U.S. economy to ramp back up from its recent slowing.
"People don't know what's out there, they haven't sorted out what's good and what's bad, so they are throwing all credit assets out," Meredith Coffey, director of analysis at the Reuters Loan Pricing Corporation (RTRSY), told The New York Times.
News and Related Story Links:
- The New York Times:
Wall St. Banks Confront a String of Write-Downs