Credit writedowns may total $175B - analyst
Bear Stearns analyst sees financial firms logging billions more in writedowns, but believes the worst is over.
NEW YORK (CNNMoney.com) -- Financial firms in the S&P 500 index ultimately will suffer $125 billion to $175 billion in mortgage and credit-related writedowns, a Bear Stearns Cos. analyst said Monday.
But the worst is over, said Jonathan Golub, Bear Stearns' chief investment strategist and author of the report. Financial firms have recognized about $115 billion in writedowns. Merrill Lynch & Co. (MER, Fortune 500) and Citigroup Inc. (C, Fortune 500) have taken the brunt of the hits, with $22.5 billion and $21.6 billion in writedowns, respectively, over the past two quarters, Golub wrote.
"The majority of the writedowns are behind us," Golub said in an interview. "The banks have taken the majority of the hits to their earnings and now we can move forward."
Since the end of the third quarter, S&P financial companies have lost $593 billion in market value and had to lower earnings estimates by $138 billion. Analysts expected earnings in the sector to be down 105% year over year in the fourth quarter, according to Golub.
Mortgage-related problems in the United States will result in a total of $250 billion to $300 billion in economic losses worldwide, of which the S&P financial firms will end up "owning" $100 billion to $120 billion, Golub wrote. They will recognize another $25 billion to $55 billion in other credit-related writedowns from problems in areas such as student loans, credit card and auto loan portfolios.
Golub's report comes on the eve of a slew of earnings releases from European financial companies. Large writedowns from these firms should not panic their U.S. peers since Europe has lagged in reporting the fallout from the mortgage meltdown.
"Our sense is that European financial institutions are well behind their U.S. counterparts in recognizing likely losses," Golub wrote. "We also believe that European analysts have been slower to downwardly revise their earnings estimates."