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$20B worth of subprime pain

Banks have paid dearly for their big bets on mortgage securities. And the toll keeps mounting.

By David Ellis, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The cost of the subprime crisis continues to mount on Wall Street.

To date, the total stands at nearly $20 billion.

Subprime news
  • WaMu sees 75% profit drop

On Friday, Merrill Lynch (Charts, Fortune 500) said it would take a writedown totaling $5.5 billion in large part because of its exposure to subprime mortgages.

Merrill was only the latest bank in recent weeks to reveal how badly its bottom line has suffered from the mortgage meltdown that began over the summer.

Just a few days ago, Citigroup (Charts, Fortune 500), UBS (Charts) and Deutsche Bank (Charts) all revealed just how badly their bottom lines have suffered. Total hit: $9.8 billion.

Last month, Bear Stearns (Charts, Fortune 500), Lehman Brothers (Charts, Fortune 500), Goldman Sachs (Charts, Fortune 500) and Morgan Stanley (Charts, Fortune 500) made similar announcements, collectively racking up $4.3 billion worth of charges.

The $20 billion total so far could go even higher. JPMorgan Chase (Charts, Fortune 500), which is set to deliver quarterly results this month, has yet to reveal how it has been impacted by the credit crisis.

In most instances, the writedowns originated from securities backed by subprime mortgages that turned toxic after homeowners began defaulting on their loan payments. To make matters worse, banks got stuck with loans that companies agreed to take when dealmaking was still robust on Wall Street.

But the mood among bank CEOs has been one of optimism. Executives from firms like Merrill and Citi have said that other areas of their businesses continue to perform well and that there have been signs that credit conditions are improving.

"Have a little confidence - we do," Bear Stearns CEO Jimmy Cayne implored investors following a half-day meeting Thursday.

So far, investors have been quick to embrace the writedowns, sending shares of Merrill, Citigroup and UBS higher on the belief that the worst of the credit crisis is behind them.

Punk, Ziegel & Co.'s Richard Bove labeled that kind of thinking as "deluded." Mortgage and derivatives businesses at many of these firms have taken a wallop and may not recover for several quarters.

"The assumption that by writing off the stuff, these business will turn around and become vibrant is almost insane," said Bove. "It's not going to happen." Top of page

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