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.
“U.S. leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble,” they said. “There is light at the end of the tunnel, but it is still rather dim.”
Of the cumulative losses expected by these leveraged players, bad residential home loans will represent about half, while poor-performing commercial mortgages will represent 15 percent to 20 percent.
The rest of the losses will come from credit card loans, car loans, commercial and industrial lending and non-financial corporate bonds, Goldman economists said.
Facing more credit losses, leveraged institutions have raised about $100 billion in new capital from domestic and foreign investors and reduced dividend payouts. This amount is more than three-quarters of the write-offs to date, the report said.
Reporting by Richard Leong