Banks Brace for Next Wave of Subprime Crisis-Related Losses
- Feb 19, 2008
New York–As the subprime mortgage fallout continues to work its way through the credit markets, Wall Street banks are preparing for more large losses, The New York Times reports.Starting with subprime mortgages, sections of the debt market have collapsed in recent weeks–a ripple effect that included value drops in high-risk corporate buyout loans, commercial real estate-backed securities and student loans. Large banks–which have already posted writedowns of more than $120 billion due to mortgage-related investments–have faced additional multibillion-dollar losses as a result, which may cause further economic declines if the banks become hesitant to issue loans as a result.During the first quarter of 2008, principal brokerage firms could knock $10 billion to $14 billion off the value of $200 billion in corporate loans, according to Meredith Whitney, an analyst at Oppenheimer. UBS analysts forecast a potential $123 billion to $203 billion structure investment vehicle, leveraged loan, commercial mortgage and subprime securities loss for the biggest global banks.Banks may also be forced to look elsewhere for capital if the credit crunch continues, the Times said. Merrill Lynch, Citigroup and UBS already solicited capital from Middle Eastern and Asian investors.