Wednesday, March 5, 2008

More Writedowns for Investment Banks

During the first quarter of 2008 investment banks were estimated to face an additional 30 billion in writedowns largely due to subprime backed securities. Coming on the heels of record losses and write downs in 2007, especially in the fourth quarter, the news from Wall Street remained gloomy.

Among the hardest hit was Citigroup. Having taken writedowns totaling $24 billion since October 2007, Citi was expected to take more write down on leveraged loans totaling $2-3 billion in the first quarter. Citi’s $43 billion exposure to leveraged loans is the largest of the big investment banks, meaning further writedowns were likely beyond that quarter. But Citi was not alone.

Recently, Wall Street banks had been slashing their estimates for first quarter earnings. Goldman Sachs estimates dropped from nearly $6 at the beginning of 2008 to $3.62. JPMorgan Chase’s estimate is now 98 cents, down from $1.12. Others including Morgan Stanley, Merrill Lynch, and Bear Stearns, announced similar cuts in earning estimates.

About half of that was borne by U.S. financial institutions. So far, only $160 billion of losses have been registered by brokerages and banks since the credit crunch began last fall. Economists calculated the mortgage credit toll on the financial system would be between $400-600 billion.

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