Goldman Sachs Predicts $460 Billion In Credit Losses
According to Bloomberg today, Goldman Sachs Group Inc. said Wall Street institutions are now looking at $460 billion in credit losses stemming from the subprime mortgage debacle. Bloomberg’s Zhao Yidi wrote:
“There is light at the end of the tunnel, but it is still rather dim,” Goldman analysts including New York-based Andrew Tilton said in a note to investors today. They estimated that residential mortgage losses will account for half the total, and commercial mortgages as much as 20 percent.
On February 29, USA Today reported that research by Goldman Sachs economist Jan Hatzius and others showed total credit losses from the mortgage meltdown could total nearly $400 billion.
Bloomberg’s Yidi added:
Goldman said the $460 billion in credit losses it foresees may “result in a substantial tightening in credit conditions as these institutions pull back on lending to preserve their reduced capital and to maintain statutory capital adequacy ratios.”
Besides residential and commercial mortgage losses, it was noted:
Credit-card loans, auto loans, commercial and industrial lending and non-financial corporate bonds make up the rest of the $460 billion in credit losses.
As I write this, one of the financial news websites is running a story with the headline “Credit Disaster? Maybe It’s Not So Bad After All.” Yet, Goldman Sachs isn’t alone in their predictions for total credit losses dwarfing the amount disclosed to date. In a post from February 29 I talked about how analysts from UBS AG, Europe’s second largest bank, were predicting total industry losses from the ongoing credit crunch would reach $600 billion, with banks and brokers accounting for $350 billion of these losses.
Sources:
“Wall Street May Face $460 Bln in Losses, Goldman Says (Update1)”
Zhao Yidi
Bloomberg, March 25, 2008
“Credit losses from mortgage crisis could hit $400B”
Sue Kirchhoff
USA Today, Febraury 29, 2008
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