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Tuesday, February 19, 2008

Housing/Subprime Roundup — Feb. 19, 2008

Items of interest:

The first baby boomers enter social security system
NY Times:
New $2.8 Billion Write-Down Jolts Credit Suisse -- Credit Suisse on Tuesday announced new write-downs of $2.8 billion that cut $1 billion from its profit, in a stunning reminder of the difficulty banks face in valuing complicated financial instruments under current market conditions.

The announcement came just a week after Credit Suisse earned praise from analysts for the quality of its risk management and it jolted investors. In morning trading on the Swiss Stock Exchange, the bank’s shares slid 5.1 Swiss francs, or 9 percent, to 51.65 francs, or $47.12.

In a statement, Credit Suisse said that an internal review had "resulted in the re-pricing of certain asset-backed positions in its structured credit trading business," and that the write-down — related to "significant adverse first-quarter 2008 market developments" — would reduce its net income by about $1.0 billion.

The "fair-value" reductions of the positions are estimated at about $2.85 billion, the bank said. Fair-value pricing means a financial instrument is assigned an estimated price when no market price is readily available. The market for many mortgage-backed derivatives has dried up as the United States housing market deteriorates, leaving banks uncertain about the values of many assets.

Credit Suisse said its internal review had "identified mismarkings and pricing errors by a small number of traders in certain positions in our structured credit trading business". The bank did not detail the problem. [...]

related:
Credit Suisse Writedowns to Cut Profit by $1 Billion - Bloomberg

NY Times:
Wall St. Banks Confront a String of Write-Downs -- Wall Street banks are bracing for another wave of multibillion-dollar losses as the crisis that began with subprime mortgages spreads through the credit markets.

In recent weeks one part of the debt market after another has buckled. High-risk loans used to finance corporate buyouts have plummeted in value. Securities backed by commercial real estate mortgages and student loans have fallen sharply. Even auction-rate securities, arcane investments usually considered as safe as cash, have stumbled.

The breadth and scale of the declines mean more pain for major banks, which have already written off more than $120 billion of losses stemming from bad mortgage-related investments. [...]

Globe & Mail [Canada]:
BMO to take $490-million charge -- Bank of Montreal warned Tuesday that it will take a pre-tax charge of about $490-million in the first quarter relating to various trading activities and structured finance holdings and says this will lower profit by about $325-million or 70 cents a share after tax. [...]
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