[NYTr] Booming Economy: Banks reveal US mortgage losses

[All the News That Doesn't Fit]

BBC News - Oct 1, 2007
http://news.bbc.co.uk/2/hi/business/7021529.stm

Banks reveal US mortgage losses

A number of big investment banks have admitted major losses caused by
bad investments centred on the crisis-hit US sub-prime mortgage market.

Worst hit was Swiss bank UBS which was write down losses of 4bn Swiss
francs ($3.4bn; £1.67bn) as a result.

The group said it would now planned to cut 1,500 jobs and make
extensive management changes.

Later, US giant Citigroup revealed its sub-prime losses would total
$1.3bn, as well as $2.6bn in extra credit costs.

The news comes a fortnight after UK lender Northern Rock was forced to
approach the Bank of England for short-term finance to cover the costs
of running its business.

The news prompted a run on the bank and led to 80% being wiped off the
value of its shares since the beginning of September. 

On Monday, its shares dropped a further 15.85% to trade at 150.8 pence
in late London trade on speculation that it home loan book would be
sold off separately from the rest of the business - leaving its
shareholders with nothing.

Widespread damage

Meanwhile, UBS called its results, which mark the first loss for the
bank in nine quarters, "unsatisfactory" and halted its share buyback
programme.

BBC business editor Robert Peston said: "The mess is doubly
embarrassing for UBS since it took a substantial hit in the dry-run for
this summer's market mayhem, the crisis afflicting the giant hedge
fund, Long Term Capital Management, in 1998.

But he added: "UBS is big enough to more than weather this storm."

Meanwhile, Credit Suisse warned it too would report lower third quarter
results because of the US sub-prime credit woes.

But it will still make a profit, unlike UBS.

Bubble pricked

US bank Citigroup will also make a profit in its third quarter, but
this will be a third of what it was last year - largely as a result of
a $1.3bn write down sparked by US mortgage woes.

But it also confirmed a pre-tax loss of $1.4bn on loans to private
equity firms, which have until now been snapping up businesses with
ever more expensive price tags at a phenomenal rate.

"This is cringe-making for Citi's chief executive, Chuck Prince," said
Mr Peston.

"In July, he told the FT that his bank was 'still dancing' in the
private equity market, long after it was obvious that the
private-equity bubble had been pricked and was deflating at an alarming
rate."

Some visibility?

As for the damage to UBS, many analysts had predicted some losses to
earnings after it warned recently that weak trading would result should
"turbulent conditions prevail".

But few had forecast the magnitude of the write downs.

"Today's UBS news is certainly bad news," said Claudia Meier, an
analyst at Vontobel.

But she argued: "On the other side, it finally gives some more
visibility to the sub-prime fears and we expect the market to like
this." 

© BBC MMVII