NEW YORK - Billions in mortgage losses reported during the third quarter could be a prelude to even bigger losses in the fourth quarter, and two more financial institutions yesterday warned of substantial write-downs.
After financial services firms took more than $40 billion in total write-downs in the third quarter, early figures for the current quarter are approaching $30 billion.
"Fundamentals point toward write-downs being worse than those listed today," CIBC World Markets analyst Meredith Whitney said yesterday. "Everyday credit gets worse and the value of securities gets worse."
Bear Stearns finance chief Samuel Molinaro Jr. said the investment bank will take a $1.2 billion write-down, leading the company to post an overall loss for its quarter ending Nov. 30. Much of that is tied to the declining value of collateralized debt obligations.
CDOs are complex financial instruments that combine slices of assets and debt. Many are backed by subprime mortgages - loans to customers with poor credit history. As those mortgages have increasingly defaulted, banks must write down the value of bonds and CDOs backed by the loans.
Credit rating agency Fitch Ratings cut Bear Stearns' short-term credit rating to "F1" from "F1+," the highest possible rating, due to earnings pressure given its exposure to the mortgage market.
Bear Stearns took an $850 million third-quarter write-down for CDOs and subprime mortgages.
Investors appeared to approve of Bear Stearns' latest write-down disclosure, though. Shares rose $2.40, or 2.4 percent, to $103.27.
Britain's HSBC said yesterday it will write down $3.4 billion for losses at its US mortgage unit, it's third write-down tied to the market in a year. Unlike Bear Stearns though, the new charge would not lead to a quarterly loss.