Monday, February 11, 2008

German finance minister: Subprime Losses Could Reach $400 Billion

by Calculated Risk on 2/11/2008 02:55:00 AM

From the Financial Times: Subprime losses could rise to $400bn

... Peer Steinbr├╝ck, German finance minister, said the G7 now feared that write-offs of losses on securities linked to US subprime mortgages could reach $400bn.
This is the first government forecast that is close to the losses projected by several economists. Last November, Goldman's Hatzius forecast losses of up to $400 Billion:
Losses related to record home foreclosures using a ``back- of-the-envelope'' calculation may be as high as $400 billion for financial companies, Jan Hatzius, chief U.S. economist at Goldman in New York wrote in a report dated yesterday.
And last December, Merrill's Rosenberg forecast $500 Billion in mortgage losses:
“It is the sum of projected losses of $250 billion in subprime loans, [about about 18% of the $1.4 trillion subprime market], $50 billion for Alt-A loans, $100 billion in negative amortization mortgage-backed security option ARMS, and $100 billion in synthetic CDO losses (synthetic CDOs gain credit exposure to the underlying subprime assets via credit default swaps).”
One of the difficulties in comparing loss projections is in clarifying which losses are being included in each projection. Note that Rosenberg only projected $250 billion in subprime losses, but it's possible that the German Finance minister is grouping all losses as "subprime". Heck, we're all subprime now anyway!