Loan Loss Estimates, Additional $200 B

123jump.com Staff
15 Feb, 2008
New York City

U.S. stocks declined on the worries that the current credit market losses may widen, higher estimates of loan losses, and weak manfacturing survey from the NY Fed. The market averages edged lower after the UBS analyst estimated additional loan losses of more than $200 billion. Separately, Citigroup estimated additional loan losses at UBS of between Sfr12 billion to Sfr20 billion. FGIC, troubled bond insurer, requested NY Insurance Department to separate its municipal bond business.

[R]12:00PM New York – Estimates of more losses left U.S. stocks in a lurch.[/R]

U.S. stocks fell as investors faced more credit market problems, rising estimates of losses, and worries related to the growing concerns to the wider economy.

Citigroup analysts estimated that UBS may face additional 12.5 billion francs to 20 billion francs of asset write-downs and losses related to leveraged loans and mortgage securities in 2008. The news on the losses left market uncertain and UBS fell 3%.

UBS analyst Philip Finch based in London said that more bank losses may be reported in the months to come. He estimated, and as reported on Bloomberg and Reuters, that additional losses of $120 billion in Collateralized Debt Obligations, $50 billion in structured investment vehicles known as SIVs, $18 billion in commercial mortgage securities, and $15 billion in leveraged buyouts related loans. The news sent market averages lower immediately.

The fearful market expects that similar level of losses may be reported by Citigroup, Merrill Lynch, Morgan Stanley, and other international banks. The growing uncertainty in the credit market is roiling market sentiment and stock market averages are caught in a trading range.

Separately the Federal Reserve of New York reported on its website that the economic conditions in the region have drastically changed according to the latest survey. The release stated the following paragraph.

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated in February. The general business conditions index tumbled nearly 21 points to -11.7, falling below zero for the first time since May 2005. The new orders and shipments indexes also dropped into negative territory. The prices paid index rose for a second consecutive month, to its highest level in considerably more than a year, while the prices received index remained elevated but close to January’s level.

The U.S. Import Price Index increased 1.7% in January, the Bureau of Labor Statistics of the U.S. Department of Labor reported today, led by a 5.5% increase in petroleum prices. The overall increase followed a 0.2% decline in December. U.S. export prices advanced 1.2% in January following a 0.4% rise in December.

New York State Insurance Department said that FGIC Corp, the bond insurer requested to split its municipal bond business from the structured financing business. Of the total of $310 billion in debt insurance, $220 billion are related to municipal bonds covering schools and local government requirements.