Credit market troubles have the potential to cause considerably more damage to bank balance sheets. A UBS analyst tallies the possible hits as $203 billion, with fallout from the deterioration of bond insurer guarantees as the biggest source of risk.
The world’s banks “remain at risk” of up to $203 billion in additional writedowns, largely because the bond insurance crisis could worsen, UBS AG said.
“Banks have made progress in credit-market related writedowns,” London-based UBS analyst Philip Finch said in a note to investors today. “But more are expected,” he added.
Writedowns for collateralized debt obligations and subprime related losses already total $150 billion, Finch estimated. That could rise by a further $120 billion for CDOs, $50 billion for structured investment vehicles, $18 billion for commercial mortgage-backed securities and $15 billion for leveraged buyouts, UBS said. “Risks are rising and spreading and liquidity conditions are still far from normal,” the note said…..
Increased credit costs of 10 basis points would lower 2008 sector earnings to 5.9 percent from 10 percent, the report said. A basis point is 0.01 percentage point.