Fitch Says Most Subprime-Related Bank Losses Have
Already Been Disclosed
Location: New York
Author: Krishnan Ramadurai
Date: Thursday, May 15, 2008
Fitch Ratings says global banks have already written down more than 80% of
their losses from subprime mortgage assets. In a special report published
yesterday, the agency estimates total market losses from subprime mortgage
assets at USD400bn, though estimates may be as high as USD550bn, depending
on the method of calculation used.
Approximately 50% of these losses, USD200bn-USD275bn, are held by banks,
with the remainder held by financial guarantors, insurance companies, asset
managers and hedge funds.
As of May 2008, Fitch estimates disclosed losses by banks on subprime
residential mortgage-backed securities (RMBS) or collateralised debt
obligations referencing mortgage-backed securities (ABS-CDOs) to be
USD165bn, or 83% of the banks' portion of the losses.
"Subprime mortgage-related losses for the total market vary considerably
depending on the methodology used," says Krishnan Ramadurai, Managing
Director in Fitch's Financial Institutions Group. "Given the problems
associated with methods of calculation based on ABX and TABX indices, we
believe that Fitch's internal loss estimate of USD400bn is a more
appropriate reflection of losses though they are also sensitive to
assumptions made on underlying loss rates."
"To the extent that institutions have effectively hedged their exposures
with financially sound counterparties, these loss figures may be
over-estimated," says Gerry Rawcliffe, Managing Director and Group Credit
Officer for Fitch's Financial Institutions Group. "Nevertheless, for those
institutions that did not hedge a sufficient portion of their super-senior
exposures, mark-to-market losses on these residual exposures have been so
large that their capital ratios have come under acute stress."
The subprime market originated as much as USD1.4trn of loans in the last
three years, Fitch estimates.
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