Wednesday, January 30, 2008

S&P: Financial institution Losses "will reach more than $265 billion"

by Bill McBride on 1/30/2008 05:29:00 PM

S&P reported today (no link):

Many of the largest global financial institutions have already taken significant losses on their exposures of subprime CDOs and the RMBS that were in the pipeline to be securitized as CDOs. For those institutions, we believe that these ratings actions are not likely to add significantly to the more than $90 billion of losses already reported. However, we believe that total losses for financial institutions will eventually reach more than $265 billion.

In our opinion, the downgrades of mortgage securities could lead to the realization of those losses, especially among some of the smaller players that have yet to feel the full extent of the value impairments on securities held in their available-for-sale securities portfolios. For institutions that hold a substantial portion of their assets in RMBS, we will be reviewing the exposures and the current marks to market on these holdings. In particular, some large European banks have not reported yet, and we currently expect upward revision of losses.

In the U.S., we see losses moving to regional banks, credit unions, and FHLBs. Certain Asian banks are also exposed. There could be rating actions for selected banks, especially for those that are thinly capitalized. ...

Another issue is the potential for a ripple impact on the broader financial markets. It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks.