PARIS (Reuters) - The cost of the financial crisis caused by the collapse of the U.S. sub-prime mortgage market may be around $350-420 billion, and a $1-trillion figure floated by the IMF is misleading, OECD officials said on Tuesday.
The OECD, which until now was predicting a cost of $300 billion in losses and writedowns, said it had ceased using market price, or mark-to-market methods, and was instead using assumptions of ultimate recovery rates of 40-50 percent on asset values.
“Our considered view is the $1-trillion view is competely misleading,” said Thomas Weiser, head of the Financial Markets committee of the Organisation for Economic Co-operation and Development.
The IMF said last week in a twice-yearly report on financial market stability that the fallout during the current crisis could hit almost $1 trillion.
Other OECD officials said the $1 trillion figure included lots of losses that were part of normal market life and not the sub-prime crisis per se, where a more focused International Monetary Fund estimate was for losses of $480 billion.
Weiser said “the one-trillion figure that the IMF has been bandying about” was discussed among others at a Monday meeting between OECD officials and representatives from banks, credit rating agencies and auditors.
“It’s a bit artificial,” said Weiser, who briefed a small group of reporters on discussions on the issue with banks and others on Monday.
The OECD reckoned its figure was realistic because it was no longer based on mark-to-market values, which in the current juncture put a value of zero on certain assets which would not ultimately be worthless, he said.
“It’s important to put these figures into the public domain to inject a higher degree of realism into the international debate on this issue,” he said.
Bankers at Monday’s meeting reckoned it could take 12 to 18 months for the sub-prime-induced crisis to work its way out of the system, said Weiser, who is Director General for Economic Policy and Financial Markets at the Austrian Finance Ministry.
According to officials the private sector representation at the meeting included people from banks such as Deutsche Bank, BNP Paribas, Societe Generale, Swiss Re, Morgan Stanley, Goldman Sachs, Royal Bank of Scotland, and Barclays.
Also present were people from credit ratings agencies Fitch, Standard and Poor’s and Moody’s as well as audit and business consultancy PricewaterhouseCoopers.
Reporting by Brian Love; Editing by Gerrard Raven