This Bloomberg piece, “Banks’ Subprime Losses Top $500 Billion on Writedowns” has some sloppy writing, but I am featuring it nevertheless because it presents some useful data and its headline factoid will no doubt be misconstrued.
The headline refers to subprime when in fact the article tallies total creidt crund losses and writedowns, not just subprime. It then compares that figure to other estimates of expected “losses” from the credit crisis. Similarly, other computations have focused on writedowns.
The problem is that at least some of those estimates were simply for writedowns, not for operational losses. For instance, the Bridewater paper, which estimated the total damage at $1.6 trillion, used a mark-to-market approach, which means it did not include losses from current business activities. Similarly, the IMF estimate, which the story also cites, was for losses to all financial players (including, for instance, hedge funds) again making for an apples and oranges comparison.
The approach used in the Bloomberg piece yields a more dramatic number, but also gives the impression we are further along with the financial mess than we may in fact be. However, the article usefully compares the damage to the firms’s equity bases versus the new funds raised to date, revealing a nearly $150 billion shortfall. Ouch.
From Bloomberg:
Banks’ losses from the U.S. subprime crisis and the ensuing credit crunch crossed the $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 today, which included $6 billion of charges on subprime-related assets.
The International Monetary Fund in an April report estimated banks’ losses at $510 billion, about half its forecast of $1 trillion for all companies. Predictions have crept up since then, with New York University economist Nouriel Roubini predicting losses to reach $2 trillion….
Firm Writedown & Loss Capital Raised
Citigroup 55.1 49.1
Merrill Lynch 51.8 29.9
UBS 44.2 28.3
HSBC 27.4 3.9
Wachovia 22.5 11
Bank of America 21.2 20.7
IKB Deutsche 15.3 12.6
Royal Bank of Scotland 14.9 24.3
Washington Mutual 14.8 12.1
Morgan Stanley 14.4 5.6
JPMorgan Chase 14.3 7.9
Deutsche Bank 10.8 3.2
Credit Suisse 10.5 2.7
Wells Fargo 10 4.1
Barclays 9.1 18.6
Lehman Brothers 8.2 13.9
Credit Agricole 8 8.8
Fortis 7.4 7.2
HBOS 7.1 7.6
Societe Generale 6.8 9.8
Bayerische Landesbank 6.4 –
Canadian Imperial (CIBC) 6.3 2.8
Mizuho Financial Group 5.9 –
ING Groep 5.8 4.8
National City 5.4 8.9
Lloyds TSB 5 4.9
IndyMac 4.9 –
WestLB 4.7 7.5
Dresdner 4.1 –
BNP Paribas 4 –
LB Baden-Wuerttemberg 3.8 –
Goldman Sachs 3.8 0.6
E*Trade 3.6 2.4
Nomura Holdings 3.3 1.1
Natixis 3.3 6.7
Bear Stearns 3.2 –
HSH Nordbank 2.8 1.9
Landesbank Sachsen 2.6 –
UniCredit 2.6 –
Commerzbank 2.4 –
ABN Amro 2.3 –
DZ Bank 2 –
Bank of China 2 –
Fifth Third 1.9 2.6
Rabobank 1.7 –
Bank Hapoalim 1.7 2.4
Mitsubishi UFJ 1.6 1.5
Royal Bank of Canada 1.5 –
Marshall & Ilsley 1.4 –
Alliance & Leicester 1.4 –
U.S. Bancorp 1.3 –
Dexia 1.2 –
Caisse d’Epargne 1.2 –
Keycorp 1.2 1.7
Sovereign Bancorp 1 1.9
Hypo Real Estate 1 –
Gulf International 1 1
Sumitomo Mitsui 0.9 4.9
Sumitomo Trust 0.7 1
DBS Group 0.2 1.1
Other European banks* 7.2 2.3
Other Asian banks* 4.6 7.8
Other U.S. banks* 2.9 1.9
Other Canadian banks* 1.8 –
____ ____TOTAL** 501.1 352.9
* Please see WDCI Help pages for a list of companies included in
“Other” categories for Europe, Asia, U.S. and Canada.** Total reflects figures before rounding. Some company names
have been abbreviated for space.
Apologies for not making a snapshot of the table, but it would have been teeny even when clicked upon.
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I guess that’s what a tsunami of debt looks like, or is it a tsunami of credit or liquidity?
On their own the financial houses will never be capable of fessing up, writing down or off, etc. Hey, the cycle is going to turn, they will just keep on with that. The only way to get to the bottom of it is for an outfit with power (the govt) to draw a big line. The starting point should be national income by source and application (stuff that is backed by real jobs with salaries and wages, AR’s and AP’s for real businesses, and whatever anyone can justify. Below all the creative stuff these guys cook up to make money out of money making money. That stuff should just get put into some kind of fiduciary depositary. This will eliminate moral hazard for people will be protected first. The Congress should go back to issuing money (pay as you go) in the form of Treasury notes. And the country should stop using tax payer’s credit to borrow funds as security for money issuance.
Chips and the Fed’s electronic clearing system can provide the skeleton of a new depositary system. The passage of ime will make all these things much clearer, for as long as money is thrown as banks and not into job creation and related stuff, everything will just keep on getting worse.
Even though the Bloomberg article suggests the $150 shortfall you mention will be made up somewhat through future capital raising exercises, I think you rightfully point out the massive difference between writedowns and capital raised.
I can’t see that yawning gap closing significantly in the near term.
I wonder how much the Fed has lost so far….
Risk Reduction
The yen may rise to 160 per euro in the next few weeks, said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Plc and a former Bank of Japan currency trader.
“Stock market declines may spread overseas, prompting risk reduction,” he said in Tokyo. “My colleagues are very bearish on the Australian dollar because of the outlook for commodities.”
Crude oil last traded at $112.98 a barrel after falling yesterday to a 14-week low of $112.31. Gold fell for an eighth straight session and copper dropped to a six-month low in New York trading yesterday. Gold and crude oil are Australia’s third and fourth most-valuable commodity exports.
U.S. Economy
The dollar may extend its decline versus the yen before a U.S. government report forecast to show consumers are spending less. Retail sales dropped 0.1 percent last month, the first decrease since February, according to the median forecast of 75 economists surveyed by Bloomberg News. The Commerce Department is scheduled to release the report today.
Federal Reserve Bank of Dallas President Richard Fisher said the economy will “broach zero growth” in the second half of the year, the Dallas Morning News reported yesterday. U.S. gross domestic product rose at an annual rate of 1.9 percent in the second quarter, the Commerce Department said July 31. It fell 0.2 percent in the final three months of last year.
“A disappointing retail sales number could limit the dollar against the yen,” said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank. “This may also cause declines in stocks, which would encourage yen buying as investors avoid risky trades.”
European Growth
The euro’s decline may accelerate on speculation gross domestic product in the 15 countries that share the currency is contracting.
Europe’s economy shrank 0.2 percent in the second quarter, following 0.7 percent growth in the previous three months, according to a Bloomberg survey. The European Union’s statistics office in Luxembourg will release the data tomorrow.
Throw into this mix July retail-sales data, which the Commerce Department reports Wednesday morning. Economists on average estimate a decline of 0.4% after rising a meager 0.1% in June. Excluding the grim automobile sector brightens the picture considerably. Adjusting for inflation, however, turns it dark again.
Retreating energy prices may help. But J.P. Morgan Chase’s Charles Grom notes that consumer spending is correlated more with unemployment, which is rising.
Moreover, a new Federal Reserve survey shows about two-thirds of the country’s loan officers reported tightening standards for credit-card and other consumer loans in the past three months, the highest in the 12 years the Fed has kept track and far higher than in the 2001 recession. That could mean less spending of cash at the malls.
There’s no question this Christmas season will be light. The dismal financial picture will be a focus again after the Olympics are over and school starts in. Look for back-to-school spending to be a harbinger of what we’ll see during the holidays.
Michael Price’s comments on Bloomberg today re. Citi and Wachovia are astute – dividends will dive as banks recapitalize.
August 12, 2008
Hey Gary:
All you have to do is to add up everything Bernanke has laid out since March 2008 (which then totaled $534B from August 2007 thru Feb. 2008) when he then changed the overnight window to 28 days, then add on an additional $1.0T or so to today when he upped the window to 84 days. Back in March the likes of Ambrose Evans-Pritchard of the Telegraph, London called Bernanke’s plan a recapitalization of US banks, and of course everyone scoffed, bellowed, and nay-say-erd. Ambrose’s point was, how could the Fed enforce the 28 day payback when it was in a “save the banks and now ‘financial companies’” and be damned the taxpayers. (Ok my prejudice) Well…it was being done for our “own good” wasn’t it? I ask that you think back just a short five months ago in March when Bernanke was working through the weekend making big and detailed announcements on Sundays, yes Sundays. Since then the Fed has gone dark leading one to speculate that maybe dear Ben is in Palm Beach at a bridge tournament or something or maybe, just maybe, things have gotten so bad that he has run out of “Hail Mary” moves.
My financial market neophyte number for the downside back in March 2008 was $1.6T just for the “sub-prime” downfall, and it was dangerous to even say that in the dark of night in a cemetery way back then. I’m now thinking that the Bear Stearn’s whatever was more of a massive cover up land fill the size of Manhattan Island rather than the “bailout” that it was advertised as. Why? Well let’s start with Merrill’s recent phony baloney “””sale””” of $36.1B of “super senior” CDO’s for $6.7B which it financed for 75% for a net “””sale””” of $1,675B if the ____ ever hits the fan. Or how about Lehman’s establishment of a “new fund” “investing” you know what, being managed by you know who, who still retain their Lehman options, in an office in some financial firm a floor below where they “used to work”. Whatever happened to “mark to market” regs? When is some brave soul going to risk his/hers financial reporting career and extrapolate the industry wide value of CDO’s at the 4.63% value of the Merrill deal? I would like to be the first to know.
I am also more than curious about the three pronged attack against the accounting reg. 140 which would severely cut back the use of “off balance sheet” accounts. 1. The legal challenge to the “After Enron regs.” already in place. 2. The proposed severe downsizing of the Federal Accounting dept. proposing the new rules. 3. No mention whatsoever about the huge amount of toxic assets therein contained. Is someone trying to cover up something? I certainly think so.
So we have Ben hiding out in some bunker with Cheney while Paulson/SEC/ Justice Department operates a 15 seat, well maybe 20 seat, circular revolving automatic conveyer belt confessional running at top speed granting absolution to a bunch of lying traders and their managers who “didn’t know what was going on.” “Say one Hail Mary and light two candles, and don’t do it again.” Thank the heavens for the likes of Andrew Cuomo.
What’s my current number for the downside before us? I know you don’t even want to know, but if you add up the likes of CDO’s to market, “off balance sheet” items, and did I mention CDS’s, I think you’re looking in the $5.0T range minimum.
I own no securities, period.
Thanks Gary, this has been a hoot and a half,
Earl L. Crockett
Santa Cruz, CA
Note how Freddie Mac handles this. They take the writedowns, and then estimate in their ‘best judgment’ that actual operational losses will be much lower, and subsequently accrete the amortized writedowns back into income. It maysoon account for most of their ‘earnings.’