UBS: Bond Crisis Could Result in $203B in Additional Write-downs
UBS AG stated today that the world's banks "remain at risk'' of up to $203 billion in additional write-downs, largely because the bond insurance crisis could worsen.
"Banks have made progress in credit-market related write-downs,'' London-based UBS analyst Philip Finch said in a note to investors today. "But more are expected,'' he added.
Finch estimated that write-downs for collateralized debt obligations and sub-prime related losses already total $150 billion. That could rise by a further $120 billion for CDOs, $50 billion for structured investment vehicles, $18 billion for commercial mortgage-backed securities and $15 billion for leveraged buyouts, UBS said. "Risks are rising and spreading and liquidity conditions are still far from normal,'' the note said.
U.S. monoline insurers MBIA Inc. and Ambac Financial Group Inc. are struggling to maintain the AAA ratings on their insurance units because of losses on residential mortgages, exposing banks to possible write-downs on CDOs guaranteed by the insurers. Monoline insurers guarantee the repayment of bond principal and interest in the event of defaults.
Ambac was the first monoline insurer to ever be downgraded when Fitch Ratings cut it to AA from AAA in January, citing "significant uncertainty'' over the insurer's business model.
A regulatory backlash against the banks also threatens to cut profits in the global banking sector by 5.3 percent this year, which could result in additional capital requirements for banks, according to Finch.
Published on February 15, 2008
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