out of the woods?

March 13 (Bloomberg) – Standard & Poor’s said the end is in sight for subprime-mortgage writedowns by the world’s financial institutions. Writedowns from subprime securities will probably rise to $285 billion, New York-based S&P said today in a report. The ratings company previously estimated losses of $265 billion in January. S&P raised its estimate because of increased loss assumptions for collateralized debt obligations. The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation writedowns'' on subprime debt, S&P credit analyst Scott Bugie said in an accompanying statement. Losses on other debt such as leveraged loans are still likely to increase, the report said. The world's largest banks and securities firms, including Citigroup Inc., UBS AG and Merrill Lynch & Co., have reported more than $188 billion of subprime-related losses since the start of last year, according to data compiled by Bloomberg. Future writedowns may come not only from banks but also hedge funds, insurers and institutional investors, S&P said. S&P's report helped prompt a rally in U.S. stocks and a decline in Treasuries. The S&P 500 Index pared losses to be down 3.34 points to 1305.43 after earlier falling as low as 1282.11. The benchmark 10-year Treasury note erased gains after the Standard & Poor's report. The note's yield increased 3 basis points to 3.47 percent. It earlier touched 3.38 percent, the lowest level since Jan. 23, the day after the central bank made an emergency cut in its target lending rate. `Rigorously' Valued S&P, Moody's Investors Service and Fitch Ratings have been criticized by lawmakers and regulators for failing to anticipate the record home foreclosures that led to a slump in securities linked to mortgages to people with poor credit. It is clear that the ultimate credit losses on the more than $1.2 trillion of subprime loans originally granted in the U.S. from 2005 to 2007 will be substantial,’’ S&P said in the report, which focused on U.S. subprime asset-backed securities. Banks such as Citigroup and Merrill Lynch, both of New York, have rigorously and conservatively valued their exposures,'' S&P said. Most of the damage should be behind them,’’ the report said. Indeed, these institutions may benefit from future recoveries in market prices if the performance of subprime borrowers stabilizes and risk premiums for uncertainties dissipate.'' CDO Losses S&P said that it now expects larger losses from high-grade CDOs used to repackage asset-backed securities with ratings of AAA, AA or A into new debt. Holdings of highly rated securities backed by Alt-A mortgages, which are a step below subprime loans in terms of expected defaults, pose a risk to those CDOs, according to a report this week from Barclays Capital analysts. The high-grade CDOs also own top classes from other CDOs. S&P said the end to writedowns and increased disclosure probably won't be enough to staunch financial companies' losses. Any positive effect will be offset by worsening problems in the broader U.S. real estate market and in other segments of the credit markets,’’ S&P said. ``If the wider spreads hold to the end of the first quarter or half of this year, financial institutions will suffer further market value writedowns of a broad range of exposures, including leveraged loans,’’ S&P said. --Editors: Emma Moody, John Pickering To contact the reporter on this story: Jody Shenn in New York at +1-212-617-2380 or jshenn@bloomberg.net To contact the editor responsible for this story: Emma Moody at +1-212-617-3504 or

chuckle, chuckle

it’s contained! whew!

Well, I think the only truely relevant fact you can state right now is that we’re probably about 60% of the way through '03-‘05 resets. Liberally, I’d estimate a 3-4 month lag for forclosures, so I’d guess that best case, peak subprime foreclosures would occur around the middle of the summer, so in that sense, I think it’s possible to begin making educated guesses about when subprime credit will begin to stabilize. On the other hand, write-downs are market related, not credit related, so this is more of an issue of when investors can get comfortable with what’s out there. Theoretically, this should lead credit as the picture becomes more clear in investors’ eyes and people become more comfortable with their projections; however, practically, given the market’s current apettite for risk, I doubt the market turns itself around until forclosures/Defaults start to decline notably…

LOL! This article breaks 2 days after this one? And from a Ratings Agency? http://www.bloomberg.com/apps/news?pid=20601109&sid=areM7a9s02ko&refer=home Truly Amazing!

If we’re half way through the resets(I don’t think we are) then realize it takes 15 months from delinquency to foreclosure. That’s assuming you have a reset->delinquency->foreclosure->writedown If that’s the case then we have a long way to go. The guy I just saw at the CFA society said the writedowns we’re seeing now are not even reset related… just stupid loan related!

The data I’ve seen over the past year shows the peak of resets occuring this month with a slight skew to the preceding months, so that’s what I based my 60% estimate on. I’m sure you’re right about the 15 months to foreclosure, but I assume by the time that rolls around the delinquencies will make the picture clear. With regard to “the writedowns we’re seeing now are not even reset related”, if worries aren’t reset-related, then why are people concerned about subprime in the first place? I think that they were certainly the catalyst for this becoming a story…

I also found the following picture of S&P when they released this report— http://bigpicture.typepad.com/comments/images/2007/07/26/bagdad_bob_large.gif