Eddielogic

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Banks are likely to face further cumulative value adjustments

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Due to the so called subprime crisis a large number of banks had to make heavy cumulative value adjustments in the third quarter 2007. The ultimate cause for this crisis was credit default related problems with sub-prime loans for house financing (mortgages) in the US.

New stresses and strains seem to be occurring for the fourth financial quarter 2007. The crisis within financial markets increased in the last quarter; now it affects securities that have less or even no link to the US house financing business. Due to new validations of certain financial products (e.g. structured finance) new value adjustments will be needed. If you ask me point-blank: Some financial players did obviously have real problems to identify the risk size that they had taken into account. Today Citigroup announced that it looks to secure further 14 billion USD in new capital. That is another new example that demonstrates the depth of the problems faced by large banks which suffered heavy losses in the US subprime mortgage crisis.

What can be expected? Today we can just guess like everyone else. In order to get a better overview the following table summarizes all cumulative value adjustments that have been made in the third quarter 2007:

Company

Country

Value adjustment in Billion EUR

Merrill Lynch

USA

5.7

Citigroup

USA

4.4

UBS

Switzerland

2.5

HSBC

UK

2.3

Deutsche Bank

Germany

2.2

Royal Bank of Scotland

UK

2.0

Barclays

UK

1.8

Credit Suisse

Switzerland

1.3

Bank of America

USA

1.1

JP Morgan Chase

USA

1.1

Goldman Sachs

USA

1.0

 

Banks with cumulative value adjustments (in the 3rd quarter 2007) below 1 billion EUR were: Wachovia (USA); Bear Stearns (USA); Dresdner Bank (Germany); Morgan Stanley (USA); Lehman Brothers (USA); West LB (Germany); Societè Generale (France); Commerzbank and Postbank (Germany both).

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  1. Pingback: Banks fall into loss on writedowns | Eddielogic

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