The Back Alley Archives

NEW YORK (Reuters) - Goldman Sachs forecasts global credit losses stemming from the current market turmoil will reach $1.2 trillion, with Wall Street accounting for nearly 40 percent of the losses.

U.S. leveraged institutions, which include banks, brokers-dealers, hedge funds and government-sponsored enterprises, will suffer roughly $460 billion in credit losses after loan loss provisions, Goldman Sachs economists wrote in a research note released late on Monday.

Losses from this group of players are crucial because they have led to a dramatic pullback in credit availability as they have pared lending to shore up their capital and preserve their capital requirements, they said.

Goldman estimated $120 billion in write-offs have been reported by these leveraged institutions since the credit crunch began last summer.

WASHINGTON (AP) — Federal bank regulators plan to increase staffing 60 percent in coming months to handle an anticipated surge in troubled financial institutions.

The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 workers in the division that handles bank failures, John Bovenzi, the agency's chief operating officer, said Tuesday.

"We want to make sure that we're prepared," Bovenzi said, adding that most of the hires will be temporary and based in Dallas.

There have been five bank failures since February 2007 following an uneventful more than two-year stretch. The last time the agency was hit hard with failures was during the 1990-1991 recession, when 502 banks failed in three years.

Regulators have warned of problems lurking, especially in smaller banks with a high concentration of real estate construction loans.

ZURICH, Switzerland - Swiss bank UBS AG on Tuesday reported more serious damage from exposure to the U.S. subprime crisis, saying it would post first-quarter losses of $12.1 billion and that it would seek $15.1 billion in new capital.

Switzerland’s largest bank said it expects write-downs of approximately $19 billion and announced the resignation of Chairman Marcel Ospel, just as Deutsche Bank AG, Germany’s largest bank, announced similar write-downs of about $4 billion, bringing the subprime-related losses reported by the two big European banks to $23 billion.

The losses reported by the banks are the latest indication of how far the severe plunge in U.S. housing prices and a credit crisis triggered by rising mortgage defaults has reached.

Deutsche Bank said it expects first-quarter write-downs of $4 billion due to “significantly more challenging” market conditions triggered by the U.S. subprime collapse.

Germany’s largest bank warned last week that it may have been harder hit by the crisis than it had previously announced, with possible losses in some lending divisions.

In a statement preceding an address in London by Deutsche Bank Chief Executive Josef Ackermann, the bank acknowledged concrete losses for the first time.

“Conditions have become significantly more challenging during the last few weeks,” the bank said. “Reflecting this environment, Deutsche Bank anticipates in the first quarter 2008 markdowns in the region of 2.5 billion euros, related to leveraged loans and loan commitments, commercial real estate and residential mortgage-backed securities.”

UBS write-downs have reached a staggering $40 billion in the past nine months, the largest reported by any bank to date.

Standard & Poor’s cut the bank’s credit rating one notch to AA-, citing “risk management lapses, earnings volatility and need for new capital.”

UBS said that after it raises new capital, its Tier 1 capital ratio, a key indicator of a bank’s ability to absorb losses, would be about 10.6 percent. That is well above minimum European requirements of 4 percent. Video

Ospel said he was ultimately responsible for the bank’s health as he stepped down.

“My willingness to stand for re-election for a further one-year term was based on my desire to lead UBS out of its current difficult situation,” Ospel said. “We have worked very hard and have been able to address the firm’s most pressing problems, thereby laying the foundation for the long-term success of the bank.”

The bank said its move to raise capital through a rights issue that would be fully underwritten by four leading international banks and would enable it to remain “one of the world’s strongest and best capitalized banks.”

“In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals,” the bank said.

It said it would create a new unit to “hold certain currently illiquid U.S. real estate assets.”

BERLIN (AP) — Deutsche Bank AG said Tuesday that it expects first-quarter write-downs of $4 billion due to "significantly more challenging" market conditions triggered by the U.S. subprime collapse.

Germany's largest bank warned last week that it may have been harder hit by the crisis than it had previously announced, with possible losses in some lending divisions.