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Banking Write-Downs
Associated Press 01.30.08, 8:35 AM ET
NEW YORK -
An Oppenheimer and Co. analyst said banks could write down an additional $40 billion in assets this year, and possibly as much as $70 billion, on the impact of further downgrades of major bond insurers by credit rating agencies.
The majority of those writedowns would be concentrated among Merrill Lynch & Co., Citigroup Inc. and UBS AG, according to Oppenheimer analyst Meredith Whitney.
Whitney said the companies would be forced to reduce the book value of the bonds they hold if ratings agencies, such as Fitch Ratings, take a more negative view of bond insurers like Ambac Financial Group Inc. and MBIA Inc.
Fitch downgraded Ambac's financial strength earlier this month, and Whitney thinks further downgrades are increasingly likely. She added that the government will not bail out the banks if the insurers are downgraded.
Ambac and MBIA insure bonds that are held by Merrill and other banks. If the insurers fail, the value of the bonds decreases, and the banks would have to write down that value.
On Wednesday, UBS said it will take a $14 billion write down in the fourth quarter, with most of the losses coming from bad bets on the U.S. subprime mortgage market.
In a separate note, Whitney downgraded Merrill Lynch shares to "Underperform" from "Perform," and said she sees the risk of as much as $10 billion in write-downs in the event of bond insurer downgrades.
She cut her 2008 profit estimate on Merrill to $4.50 per share from $4.88, and said the stock is expensive. Shares finished at $57.47 Tuesday, and Whitney said they should be priced under $44.
http://www.forbes.com/feeds/ap/2008/01/30/ap4591693.html
Associated Press 01.30.08, 8:35 AM ET
NEW YORK -
An Oppenheimer and Co. analyst said banks could write down an additional $40 billion in assets this year, and possibly as much as $70 billion, on the impact of further downgrades of major bond insurers by credit rating agencies.
The majority of those writedowns would be concentrated among Merrill Lynch & Co., Citigroup Inc. and UBS AG, according to Oppenheimer analyst Meredith Whitney.
Whitney said the companies would be forced to reduce the book value of the bonds they hold if ratings agencies, such as Fitch Ratings, take a more negative view of bond insurers like Ambac Financial Group Inc. and MBIA Inc.
Fitch downgraded Ambac's financial strength earlier this month, and Whitney thinks further downgrades are increasingly likely. She added that the government will not bail out the banks if the insurers are downgraded.
Ambac and MBIA insure bonds that are held by Merrill and other banks. If the insurers fail, the value of the bonds decreases, and the banks would have to write down that value.
On Wednesday, UBS said it will take a $14 billion write down in the fourth quarter, with most of the losses coming from bad bets on the U.S. subprime mortgage market.
In a separate note, Whitney downgraded Merrill Lynch shares to "Underperform" from "Perform," and said she sees the risk of as much as $10 billion in write-downs in the event of bond insurer downgrades.
She cut her 2008 profit estimate on Merrill to $4.50 per share from $4.88, and said the stock is expensive. Shares finished at $57.47 Tuesday, and Whitney said they should be priced under $44.
http://www.forbes.com/feeds/ap/2008/01/30/ap4591693.html
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