Wall Street Write-Downs Approach $100 Billion Mark

Posted In: Banking Crisis, Credit, Derivatives, Financial Sector, Housing, Investment Banks, Mortgages, S&L Crisis, Subprime, Wall Street, Write-Downs

Earlier today Wall Street Journal bloggers reported that write-downs related to the U.S. subprime mortgage meltdown have reached $96 billion after Citigroup announced another $17.4 billion in write-downs. A post in the Deal Journal predicted that this amount is expected to top $100 billion by the end of the week.

According to the blog, when you add Citigroup’s latest write-down to the $14.6 billion already lost by the bank, “Citigroup’s total hit to date related to the subprime-mortgage meltdown is $32 billion, the largest by any investment bank and one-third of the total written down across the entire sector.”

Deal Journal bloggers predict that the “write-downometer” from the Dow Jones-owned Financial News will surge to $112.1 billion by the end of this week after J.P. Morgan Chase and Merrill Lynch announce their fourth-quarter results. Analysts predict J.P. Morgan Chase to announce an additional $3.4 billion, while Merrill is expected to write-down somewhere between $15 billion to $22 billion.

Before the holidays, the financial blog Calculated Risk talked about the potential total losses from the growing number of write-downs. From their December 23 post entitled, “Barclays: Losses May Reach $700 Billion”:

Goldman Sachs caused shock last month when it predicted that total crunch losses would reach $500bn, leading to a $2 trillion contraction in lending as bank multiples kick into reverse. This already seems humdrum.

“Our counterparties are telling us that losses may reach $700bn,” says Rob McAdie, head of credit at Barclays Capital. Where will it end? The big banks face a further $200bn of defaults in commercial property. On it goes.

UPDATE: My main interest in this article was the quote from Barclays Capital. There has been a growing agreement that the mortgage credit crisis would result in losses of perhaps $400B to $500B; this is the first estimate I’ve seen significantly above that number.

I noted last week that a $1+ trillion mortgage loss number is possible if it becomes socially acceptable for the middle class to walk away from their upside down mortgages. And that doesn’t include losses in CRE, corporate debt and the decrease in household net worth.

The S&L crisis was $160B, so even adjusting for inflation, the current crisis is much worse than the S&L crisis…

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