Sub-prime losses incurred by banks top US$500b

August 14, 2008
Sub-prime losses incurred by banks top US$500b

(NEW YORK) Banks' losses from the US sub-prime crisis and the ensuing
credit crunch crossed the US$500-billion mark as writedowns spread to
more asset types.

The writedowns and credit losses at more than 100 of the world's
biggest banks and securities firms rose after UBS AG reported second-
quarter earnings on Tuesday, which included US$6 billion of charges
on sub-prime related assets.

The International Monetary Fund in an April report estimated banks'
losses at US$510 billion, about half its forecast of US$1 trillion
for all companies. Predictions have crept up since then, with New
York University economist Nouriel Roubini predicting losses to reach
US$2 trillion.

'It just keeps spreading from one asset to another, so it's hard to
know when these writedowns will stop,' said Makeem Asif, an analyst
at KBC Financial Products in London. 'The US economy needs to
stabilise first. But even then, Europe could lag and recover later.
There's still a lot more downside.'

Auction-rate securities have begun adding to the losses as regulators
and prosecutors force banks to buy back bonds they had sold as safe
investments. UBS set aside US$900 million to cover potential losses
from repurchasing the securities, while Citigroup Inc and Wachovia
Corp estimated losses at US$500 million each.

The collapse of the US sub-prime mortgage market last year has
saddled banks worldwide with US$501 billion of losses from declining
values of securities tied to all types of home loans and commercial
mortgages as well as leveraged loan commitments.

Banks and brokers have raised US$353 billion of capital to cope with
the writedowns, according to data compiled by Bloomberg. The gap
between losses and capital infusions, which now stands at US$148
billion, has regularly narrowed to about US$80 billion as capital
raising follows writedown announcements.