Credit Losses - We Haven't Hit The Bottom Yet

Bloomberg reports that BlackRock founder Larry Fink said at an investor conference Tuesday that the credit losses sustained so far by a number of financial institutions is likely to get worse. Fink said that 'many institutions don't understand what the credit crunch is going to do to earnings and their balance sheet.....I don't know when it's over, but it's not over yet. The bottom has not been achieved'.

And Morgan Stanley head of credit strategy Gregory Peters said that he now believes that there is a greater than 50% probability that the whole financial system will grind to a halt because of the subprime lending-related losses. Peters said that 'while the near-term concern is the systematic shock of the subprime-related losses, the medium and long-term concern is the impact on the average consumer. The ultimate irony here is that the US consumer now needs readily available capital more easily than ever, but they're going to have the most difficult time getting it'.

Deutsche Bank analyst Michael Mayo hasĀ told Fortune magazine that it could take two to three years for the subprime lending crisis to play out. He said that much depends on whether other issues emerge - he mentioned that there have been auto loan problems and problems in real estate construction.

Reuters reports that Royal Bank of Canada has now come out and said that it is to take a $376.7m pre-tax charge in the fourth-quarter on US subprime lending-related assets. Although things don't seem as bad over at JPMorgan Chase. The Wall Street Journal reports that CEO Jamie Dimon said Tuesday that the bank's exposure to CDOs is around $1.5bn, and that none of this exposure is linked to subprime lending. With another $6.8bn (as at the end of September) in warehoused CDOs (awaiting securitization), Dimon said that 'I think we're fine'. Citi analyst Keith Horowitz agreed, reiterating his 'buy' rating on the firm.

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