Remember the good old days? Ahhh, a simpler time, when we were repeatedly told that sub-prime didn’t matter, that it was contained, that the losses were a mere $60 billion dollars at most, and overall, this would have zero impact on the broader economy?
Only not so much.
We learned via the number crunchers at Bloomberg that the $500 Billion mark in losses and write downs has now been crossed:
"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."
That may sound bad — but it looks even worse:
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That is the total write-downs and cap raises above.
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The net — raise minus write-down — is below:
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All charts via Jake at Econompic Data
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$500B is about 10X the original contained estimates of meaningless losses . . .
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Source:
Banks’ Subprime Losses Top $500 Billion on Writedowns
Yalman Onaran
Bloomberg, Aug. 12 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8sW0n1Cs1tY&
In keeping with the Paul Perspective, it should only matter 10th as much as it should have been ignored! Uncle Sam wants you to buy War Bon…. ummm Equities!
Of course, this only illustrates the cash flow situation — a requisite bit of data would be the net asset value of the firms alongside the inflows/outflows — even though NAV is pretty nebulous, amid all the smoke and mirrors. Then we could see which ones are really in dire straits (which is probably all of them).
Mabye BR will link to it later, but he has a good spot with Henry “I am one of the few with the guts to confront Cramer bluntly” Blodget on Tech Ticker regarding the housing bottom. Apropos to that discussion, I present the following quote: “I think housing has hit bottom — not
turning, but hit bottom — in California, which is a better environment than in
other heavy areas, and I think Downey’s the way to play for earnings and the
potential for a takeover.” — Jim Cramer, June 2007 (Downey was in the $50s).
Wow, what a surprise… who could have expected this?
U.S. retail sales dipped in July
Multiple economic woes blunted impact of the stimulus checks
WASHINGTON – The government said Wednesday that U.S. retail sales dipped 0.1 percent in July as multiple economic woes blunted the impact of the government’s stimulus checks.
Bluestatedon,
It is also interesting to look at a breakdown of how the stimulus checks were spent…what I have seen is that about 20% were actually plowed back into the economy with most of it used for debt or savings, and gasoline…
Also the government sent a significant portion of the checks out the last part of July, so the .1% drop is a little puzzling, in that you would expect the drop to say, maybe show up in next week’s figures…
Bruce in Tennessee
The capital raised could have gone to productive investment uses… but instead, it is simply fuel on a raging fire… and part of it will be paid out in year-end bonuses, of course. It is impossible to be too cynical about the level of incompetence and dishonesty in the investment banking business.
….but most definitely the worst is over and it’s time to buy, buy, buy financials! If only, it were that easy…….
Cramer crying for MORE SEC protection of the financials. I can see it now – when the financials go below the July 15th bottoms, he’ll have a handy excuse for his bad call – “the SEC knows nothing, nothing! If only the SEC had stepped in, I would have been right!”
http://www.thestreet.com/story/10433130/1/cramer-sec-paints-a-target-on-financials.html?puc=newshome
It seems that the greedy parasites will continue to thrive while the country as a whole is going down the drain.
Cramer’s article on his site talking about the importance of “rules”. Is he serious with this stuff or merely being a comedian? “Rules” tilted towards he and his buddies are most always welcome but when it comes to “rules” that would protect those outside of his inner circle – not so much. The sheer hypocrisy of his article about “rules” is breathtaking.
Hi Barry,
What really impress me is that Citi alone is 10% of all the loss.
Add to that the Pareto Law, the six first banks alone represente more than 200 Milions.
That is what I would call good risk managment. :)
Lol from Brazil
The same institutions with large losses are having to repurchase the Auction Rate Securities from client using the liquidity they generated by diluting shareholders. With that new liquidity gone, will these institutions be able to raise even more funds?
This is a very revealing chart. Hard to believe there are more write downs coming.
Great post.
Kind of on topic. The first guy to pay without paper money.
http://www.wtop.com/?nid=456&sid=1458958
I won’t point out that he obviosly trusts money in a computer server if he wrote a check for the other half of it. lol.
Hmmm I wonder if they are having trouble loaning to their buyers.
http://www.ft.com/cms/s/0/01d4ea10-68ce-11dd-a4e5-0000779fd18c.html
Actually when I added up the list here:
http://bankimplode.com/blog/category/writedowns-and-distress/
I got over $1 trillion.
Of course one can argue with its methodology. But it was nevertheless fascinating to click on each institution and see, say, its Level III assets.
The list doesn’t include AIG ($13 Bn) and Ambac Financial Group ($8.3 Bn). Neither of these is a bank, but both have incurred huge writedowns.
Putting it all into perspective, we are probably going to see a bit more activity from the writedown side of things. I feel like the credit crisis is still being under-estimated and the banks have a long road for recovery ahead.
This recent stock-buying activity is nice for the overall markets though, eh? :)