$400 billion in losses?
Bloomberg reports a $300-400 billion loss estimate from the sub-prime mess, according to a research note by Deutsche Bank:
Banks and brokers will be forced to write down as much as $130 billion because of the slump in subprime-related debt, based on a “seat-of-the-pants” estimate the firms will account for a third of total mark downs, Mike Mayo, a New York-based analyst at the bank, wrote in a report today. Banks may have to write off $60 billion to $70 billion this year, he wrote.
The world’s biggest banks and securities firms including Citigroup Inc. and Merrill Lynch & Co. have written down more than $40 billion of assets as mortgage-related bond prices slump on record U.S. foreclosures. About $1.2 trillion of the $10 trillion of outstanding U.S. mortgages are considered to be subprime, Mayo said in the note…
Deutsche Bank expects 30 percent to 40 percent of subprime debt to default. Losses on loans to people with poor credit histories may be as much as half the sum lent, Mayo said. The estimate for banks’ and brokers’ losses in 2007 is based on known charges of $43 billion and expected additional losses of $25 billion, Mayo said in the note. Loss rates on about $200 billion of securities based on derivatives linked to subprime debt will run as high as 80 percent, according to the note.
“Deutsche Bank expects 30 percent to 40 percent of subprime debt to default.” This represents a shocking degree of banking malpractice. What happened to the 3 C’s of credit that we were taught in the old days?
November 13th, 2007 at 9:53 am
“Deutsche Bank expects 30 percent to 40 percent of subprime debt to default.”
OK, but unless the loan to value ratio is extremely high and the market has totally collapsed in that area, most of the losses will be recovered. If foreclosed homes are selling for $1.50 in Los Angeles, I’ll take a couple, now…
“Losses on loans to people with poor credit histories may be as much as half the sum lent, Mayo said.” Does anybody believe this? Anybody? Really? You tell me a bank lent $500,000 on a home and can only recover half of it from a foreclosure sale. I’ll believe it when the banks publicly prosecute the loan officers who defrauded them. I’ll buy ten to twenty percent overvaluation in some markets, but half? This is not credible.