More financial pain for banks from credit crunch

by Richard Kilner

Story link: More financial pain for banks from credit crunch

On Friday, UBS analyst Philip Finch stated that there remains a $203bn risk of writedowns from the US subprime mortgage crisis in banks across the globe.

Collateralised debt obligations (CDOs) and losses related to the subprime situation has already cost in the region of $150bn, Finch has estimated.

He predicts this could rise by $203bn.

Of that, another $120bn could come from CDOs, $50bn from SIVs (structured investment vehicles), with the remainder coming from mortgages and leveraged buyouts.

Residential mortgage losses are causing difficulties for monoline insurers, such as US firms MBIA and Ambac Financial Group, who are struggling to retain their AAA rating.

Should monoline insurers lose their high rating, the difficulties could then be passed onto banks which could then see CDO writedowns for CDOs which had been guaranteed by their insurers.

Another potential problem for the worldwide banking sector is the prospect of further regulation, which could cost up to a 5% cut in profits.