| NEW YORK
NEW YORK Standard & Poor's said on Thursday
write-downs for large financial institutions on subprime debt
are likely past the halfway mark, but could still hit $285
S&P's estimate of write-downs was up from the $265 billion
figure it published in January, but the credit ratings agency
said an end to subprime write-downs was in sight.
"The positive news is that, in our opinion, the global
financial sector appears to have already disclosed the majority
of valuation write-downs of subprime asset-backed securities,"
S&P credit analyst Scott Bugie said in a report.
More write-downs could be in store outside the subprime
sector, however, S&P cautioned.
S&P's statement gave a boost to financial stocks and helped
Wall Street indexes pare losses.
The Dow Jones industrial average .DJI gained 0.3 percent
after earlier falling about 2 percent. The S&P 500 Index .SPX
was up 0.88 percent, reversing earlier losses of more than 2
LEHMAN, MERRILL SHARES RISE
The Amex Securities Broker/Dealer index .XBD, which
includes investment banks and brokerages, shed nearly 5 percent
before the report. It ended up 1.0 percent.
"We believe that the largest players, such as Merrill Lynch
& Co Inc MER.N and Citigroup Inc (C.N), have rigorously and
conservatively valued their exposures to subprime asset-backed
securities such that most of the damage should be behind them,"
S&P also said some subprime mortgage write-downs are larger
than any reasonable estimate of actual losses.
Shares of Lehman Brothers Holdings Inc LEH.N, down nearly
5 percent before the S&P report, reversed those losses and
ended up 2.3 percent $45.99.
Shares of Merrill Lynch, which had been down 2.5 percent,
ended up 2.98 percent.
Some market players may have misread S&P's report, however,
said Daniel Alpert, managing director at Westwood Capital, a
New York investment bank specializing in securitization.
The report deals only with expected losses on subprime
debt, but that is only about 8 percent of the $11 trillion of
total residential mortgage debt outstanding, Alpert said in an
"The current crisis, of course, is no longer a subprime
crisis," he said, noting that a growing percentage of home
foreclosures are coming from outside the subprime sector.
$150 BLN WRITE-DOWNS TO DATE
Mike Kagawa, portfolio manager at Payden & Rygel in Los
Angeles, said he was surprised S&P said the end may be nearing
for write-downs on subprime mortgages. "They must be seeing
something I'm not," he said. "I just don't see it."
Financial institutions globally have already taken about
$150 billion of subprime-related write-downs, S&P estimated.
The write-downs have taken a major toll on banks' balance
sheets, making them reluctant to extend credit and triggering a
chain reaction of margin calls and forced selling across an
array of markets.
In the latest fallout, a fund affiliated with buyout firm
Carlyle Group said late on Wednesday its lenders were likely to
seize its remaining assets after it defaulted on about $16.6
billion of debt.
S&P noted that the positive impact of subprime disclosures
and write-downs is offset by worsening U.S. housing and credit
markets. For details, see [nN13300839].
"A major repricing of credit risk is taking place across
the debt markets, with credit spreads having further widened in
most segments since the beginning of 2008," S&P said. If
spreads remain wide, financial institutions could suffer more
write-downs beyond the subprime sector, such as in leveraged
loans, S&P said.
(Reporting by Dena Aubin; additional reporting by Dan
Wilchins, Nancy Leinfuss and Karen Brettell; Editing by Dan