Avid readers will know that we warned you of the sub-prime crisis last summer, saying how a tsunami would roll through the credit markets, with knock-on effects for housing, gold, and our beloved stocks.
The following table published on Bloomberg this week shows the $181 billion in asset write-downs and credit losses since the beginning of 2007, including reserves set aside for bad loans, at more than 45 of the world's biggest banks and securities firms.
You are asking what’s the difference between a write-down and a credit loss? Investment banks, and the investment-banking units of financial conglomerates, mark their assets to market values, whether they're loans, securities or collateralised debt obligations. When values decline they label this a ‘write-down’.
Commercial banks take charge-offs on loans that have defaulted on and increase reserves for loans they expect to go bad, which they label ‘credit losses’.
All figures are given in US$ billions.
| Firm | Write down | Credit Loss | Total |
| Merrill Lynch | 24.5 | 24.5 | |
| Citigroup | 19.9 | 2.5 | 22.4 |
| UBS | 18.1 | 18.1 | |
| HSBC | 0.9 | 9.8 | 10.7 |
| Morgan Stanley | 9.4 | 9.4 | |
| IKB Deutsche Korea | 8.7 | 8.7 | |
| Bank of America | 7 | 0.9 | 7.9 |
| Washington Mutual | 0.3 | 6.2 | 6.5 |
| Credit Agricole | 5.1 | 5.1 | |
| Credit Suisse | 4.8 | 4.8 | |
| Wachovia | 2.7 | 2 | 4.7 |
| Canadian Imperial (CIBC) | 4.2 | 4.2 | |
| Societe Generale | 3.7 | 3.7 | |
| Mizuho Financial Group | 3.3 | 3.3 | |
| Barclays | 3.2 | 3.2 | |
| JP Morgan Chase | 1.6 | 1.6 | 3.2 |
| Royal BankofScot land | 3.1 | 3.1 | |
| Bayerische Landesbank | 2.9 | 2.9 | |
| Dresdner | 2.7 | 2.7 | |
| Bear Stearns | 2.6 | 2.6 | |
| Deutsche Bank | 2.4 | 2.4 | |
| ABN Amro (b) | 2.4 | 2.4 | |
| Natixis | 1.8 | 1.8 | |
| Fortis | 1.8 | 1.8 | |
| Wells Fargo | 0.3 | 1.4 | 1.7 |
| Lehman Brothers | 1.5 | 1.5 | |
| DZ Bank | 1.5 | 1.5 | |
| National City | 0.4 | 1 | 1.4 |
| BNP Paribas | 0.9 | 0.3 | 1.2 |
| Nomura Holdings | 1 | 1 | |
| Gulf International | 1 | 1 | |
| Asian banks excluding | 3.3 | 0.6 | 3.9 |
| Mizuho, Nomura | |||
| Canadianbanks | 2.2 | 0.1 | 2.3 |
| excluding CIBC | |||
| European banks not | 5.2 | 0.1 | 5.3 |
| listed above | |||
| TOTALS | 154.4 | 26.5 | 180.9 |
These charges come from the collapse of the US subprime mortgage market. The figures, from company statements and filings, also reflect some credit losses or write-downs of mortgage assets that aren't subprime.
In the table you can see an entry marked ‘Asian banks’. These have been gathered together because their losses are relatively small. They include: Bank of China, Mitsubishi UFJ, Sumitomo Mitsui, Shinsei, Sumitomo Trust, Aozora Bank, DBS Group, Australia & New Zealand Banking Group, Abu Dhabi Commercial and Arab Banking Corp.
Similarly, the grouped Canadian banks include: Bank of Montreal, National Bank of Canada, Bank of Nova Scotia and Royal Bank of Canada.
European banks with write-downs below $1 billion each: ING Groep, Allied Irish Banks, Bradford & Bingley, Aareal Bank, Deutsche Postbank, Lloyds TSB Group, Landesbank Sachsen Girozentrale, Standard Chartered, Northern Rock, HBOS, Dexia, WestLB, Commerzbank.
Some interesting facts:
European banks and brokers have racked up losses of $79 billion, compared with $86 billion for US-based institutions. So whilst the press is centered on this being a US news item, you can see how far the contagion has spread.
Our own bank of choice, Lloyds TSB, has come out relatively well compared to other UK clearing banks.
But not everyone is doing so well. Credit market losses will climb to $600 billion, according to UBS analyst Geraud Charpin.
‘Leveraged risk positions are a cancer in this market and the sooner it is treated the better,’ he wrote recently.
So it looks like the banks are not really telling us the truth. It is my considered medical opinion that banks and insurers should carry a health warning.
And on that cheery note, I’ll say goodbye.
Happy trading,
M005e & "M"
