S&P sees mortgage-related bank losses topping $265 billion

NEW YORK (Reuters) - Standard & Poor's on Wednesday said total losses for financial institutions from continuing mortgage market problems will eventually total more than $265 billion.

The credit ratings agency's comment came after it said it cut or may cut its ratings on $270 billion worth of U.S. mortgage-backed securities and put $264 billion of collateralized debt obligations on review for possible downgrades.

"Banks are bracing for another chapter in the unfolding story of their mortgage market problems," Standard & Poor's said in a statement.

S&P 500 stock index futures dropped further in after-hours trading on news of the statement. S&P 500 futures SPc1 were down 16 points and traded below fair value -- a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

The credit ratings agency said its latest action is unlikely to add significantly to more than $90 billion of losses already reported by large financial institutions, but smaller players might have to realize write-downs.

Swiss investment bank UBS (UBSN.VX) (UBS.N) on Wednesday unveiled $4 billion in new subprime-related write-downs.

Standard & Poor's also said it expects upward revision of losses from some large European banks that have not yet reported, while in the United States, it expects losses to spread to regional banks, credit unions and federal home loan banks.

The ratings agency said it will be reviewing exposures of institutions that hold a substantial portion of their assets in residential mortgage-backed securities.

There could be ratings actions -- ranging from outlook revisions to one-notch downgrades -- for selected banks, especially for those that are thinly capitalized, S&P said.

Further downgrades of mortgage-backed securities will have implications for trading revenues, general business activity and liquidity for the banks, it added.

S&P also said that some investors whose investment guidelines do not allow them to hold lower rated instruments might be forced to divest.

(Reporting by Anastasija Johnson and Neil Shah; editing by Gary Crosse)