The Worst is Yet To Come
Regarding the debt market crisis and reporting write downs, Sam Molinaro, CFO at Bear Stearns:
"We think the worst is definitely behind us."
From Jubak at MSN: "Wall Street would be happy if you believed that...."
"The belief "the worst is over" in the crisis... is the best hope that Wall Street's investment banks have of getting out of this mess with their skins intact.
But don't you believe it. There's not a chance the worst is over, and Wall Street knows it.
Citigroup delivered a bomb, when it warned that earnings would fall by 60% for Q3 as a result of a $1.3 billion write-down of its debt portfolio and $600 million in fixed-income trading losses."
The Nattering One muses... USB will post a loss and take a $3.4 Billion write down; Deutsche Bank will write down $3.1 Billion.
Merrill Lynch will post a loss and write down $5.5 Billion of which $4.5 billion, comes as the firm marks to market the value of collateralized debt obligations, or CDOs, and subprime mortgages.
Today, Goldman Sachs, the world's biggest securities firm, said the "fair value" of its holdings backed by pools of bonds and loans dropped 53% in Q3.
Retained interests in collateralized debt obligations and loan obligations sank to $1.77 billion at the end of August from $3.79 billion three months earlier.
The value of the holdings fell 29% to $3.79 billion from $5.35 billion three months earlier. Investments in mortgage-backed securities fell only 16%.
Repackaging crimped... Sachs securitized $2.86 billion of residential mortgages during the three months ended Aug. 31, down from $18.63 billion a year earlier.
Goldman's filing doesn't say whether its holdings shrank because the firm marked them down, or sold them, or both.
What will this quarters multi billion dollar write downs on "hung loans" and "mark to model" look like...
from even the most solvent of institutions... such as Bank of America.
Valuations for Level 3 assets... (mark to fantasy or model, rather than market)
which include securitized packages of subprime mortgages, buyout loans and other debt that have plunged in value at some financial firms by 20% or more in a month...
are set not by market prices but internal calculations. In other words, the prices of Level 3 assets are completely subjective rather than objective.
Level 3 assets at Bank of America = $21.6 billion; B of A recorded an unrealized loss for the Level 3 assets of $748 million for the first six months of the year...
Of which... $601 million occurred in the quarter that ended June 30.
Valuations for Level 2 assets, where there may be market activity, but valuations often depend on internal valuation models in the absence of quoted prices...
Level 2 assets at Bank Of America = $609 billion. Only $64 billion of Bank of America's assets fall into Level 1...
where valuations are set by quoted prices or mark to market.
Citigroup reports Oct 15, Bank of America, JPMorgan Chase, Wachovia, Washington Mutual and Wells Fargo all report Oct. 17, 18 or 19.
Some expected write downs or profit declines: B of A $1 Billion; JP Morgan $2 Billion; WaMU -75% and $300 Million.
"We think the worst is definitely behind us."
From Jubak at MSN: "Wall Street would be happy if you believed that...."
"The belief "the worst is over" in the crisis... is the best hope that Wall Street's investment banks have of getting out of this mess with their skins intact.
But don't you believe it. There's not a chance the worst is over, and Wall Street knows it.
Citigroup delivered a bomb, when it warned that earnings would fall by 60% for Q3 as a result of a $1.3 billion write-down of its debt portfolio and $600 million in fixed-income trading losses."
The Nattering One muses... USB will post a loss and take a $3.4 Billion write down; Deutsche Bank will write down $3.1 Billion.
Merrill Lynch will post a loss and write down $5.5 Billion of which $4.5 billion, comes as the firm marks to market the value of collateralized debt obligations, or CDOs, and subprime mortgages.
Today, Goldman Sachs, the world's biggest securities firm, said the "fair value" of its holdings backed by pools of bonds and loans dropped 53% in Q3.
Retained interests in collateralized debt obligations and loan obligations sank to $1.77 billion at the end of August from $3.79 billion three months earlier.
The value of the holdings fell 29% to $3.79 billion from $5.35 billion three months earlier. Investments in mortgage-backed securities fell only 16%.
Repackaging crimped... Sachs securitized $2.86 billion of residential mortgages during the three months ended Aug. 31, down from $18.63 billion a year earlier.
Goldman's filing doesn't say whether its holdings shrank because the firm marked them down, or sold them, or both.
What will this quarters multi billion dollar write downs on "hung loans" and "mark to model" look like...
from even the most solvent of institutions... such as Bank of America.
Valuations for Level 3 assets... (mark to fantasy or model, rather than market)
which include securitized packages of subprime mortgages, buyout loans and other debt that have plunged in value at some financial firms by 20% or more in a month...
are set not by market prices but internal calculations. In other words, the prices of Level 3 assets are completely subjective rather than objective.
Level 3 assets at Bank of America = $21.6 billion; B of A recorded an unrealized loss for the Level 3 assets of $748 million for the first six months of the year...
Of which... $601 million occurred in the quarter that ended June 30.
Valuations for Level 2 assets, where there may be market activity, but valuations often depend on internal valuation models in the absence of quoted prices...
Level 2 assets at Bank Of America = $609 billion. Only $64 billion of Bank of America's assets fall into Level 1...
where valuations are set by quoted prices or mark to market.
Citigroup reports Oct 15, Bank of America, JPMorgan Chase, Wachovia, Washington Mutual and Wells Fargo all report Oct. 17, 18 or 19.
Some expected write downs or profit declines: B of A $1 Billion; JP Morgan $2 Billion; WaMU -75% and $300 Million.
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