Goldman Sees Higher Credit Losses on Mortgages
NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) has raised the estimated percentage of credit losses on its mortgage-backed securities portfolio, the U.S. investment bank disclosed on Wednesday.
Goldman's anticipates credit losses of 4.5 percent on $2.92 billion in mortgage-backed securities as of August, the company said in a quarterly filing with U.S. regulators. Its previous anticipated credit loss estimate was 3.8 percent on $3.5 billion in mortgage-backed securities as of May.
Meanwhile, the value of the New York-based investment bank's stake in mortgage-backed securities and pools of loans, or collateralized-debt obligations, has declined 35 percent to $4.77 billion from $7.3 billion since May. Goldman Sachs and other Wall Street banks have had to write down the value of these assets amid a global credit squeeze.
Goldman Sachs produced stellar profits in the third quarter, showing a 79 percent gain, while rivals such as Bear Stearns Cos Inc BSC.N and Merrill Lynch & Co Inc MER.N stumbled from poor risk management and wrong-way bets on securities tied to mortgages given to people with weak credit. Merrill said last week it expects to lose money when it reports third-quarter results next week.
As defaults on U.S. mortgages continue to escalate, pensions, hedge funds and insurance companies are no longer keen to buy securities backed by homeowner loan payments.
Goldman Sachs, for example, packaged and sold, or securitized, only $23 billion in residential mortgages to investors during the nine months ended in August. That is down from $55.20 billion in the year-earlier period, the investment bank said in its quarterly filing.
Goldman Sachs also said the value of Level 3 assets, whose worth is largely pegged to management assumptions, stands at $72 billion, or 7 percent of the investment bank's total assets. The assets, which include corporate debt and subprime mortgages, are seen as risky because they trade infrequently, preventing companies from gathering reliable market prices.
In the second quarter, Goldman Sachs held $54.1 billion in Level 3 assets.
(Reporting by Tim McLaughlin)
