Banks' credit-crisis write-downs top the half-trillion mark

Banks' credit-crisis write-downs top the half-trillion mark

2:20 PM, August 12, 2008

Now $500 billion -- and counting.

That's Bloomberg's tally of the credit write-downs that investment banks and commercial banks worldwide have taken since the subprime mortgage debacle began to unfold early in 2007.

The total reached $501 billion today after Swiss financial giant UBS said it wrote off another $5.1 billion tied to U.S. mortgage-backed securities and $900 million to cover its buyback of so-called auction-rate debt securities held by clients.

Bloomberg's tally includes losses the banks have recorded on their subprime-related bond holdings and on other securities that have been marked down in value as the credit crisis has deepened.

The total of write-downs has ballooned from $218 billion just since the end of last year. Citigroup Inc. ranks No. 1 with accumulated write-downs, at $55.1 billion, according to Bloomberg. Merrill Lynch & Co. is No. 2, with $51.8 billion. UBS is third with $44.2 billion.

And it doesn't look at all like we've peaked. Shares of JPMorgan Chase & Co. today plunged $3.97, or 9.5%, to $37.92, after the bank said in a regulatory filing that it has racked up $1.5 billion in additional losses on mortgage-backed bonds and other securities just since June 30, as market conditions "have substantially deteriorated."

Through June 30 JPMorgan's accumulated write-downs totaled $14.3 billion -- so it had been faring better than many of its major peers.

JPMorgan's warning helped drag most financial stocks lower today. The financial-sector index of the Standard & Poor's 500 index plunged 5.2%, its steepest loss since it dropped 6.7% on July 24. The Dow Jones industrial average dropped 139.88 points, or 1.2%, to 11,642.47.

Marty's Note:

During a similarly lousy period for bank stocks, between 1988 and 1993, banks' chargeoffs and loan loss provisions kept rising from 1988 and did not peak until 1991, then steadily declined through 1993. However, bank stock prices bottomed out, hit their trough, a full year before the writeoffs peaked...and by the time the chargeoffs peaked, the recovery in stock prices was fully half over and prices had doubled. Its difficult to buck trends, defy current news and pull the trigger, without confirmation of an ending crisis and light at the end of the tunnel. In this scenario, I think the light at the end of the tunnel is the train pulling out of the station...and I'm going to be on it.

I suppose its human nature to vent, to get some personal satisfaction by placing blame on someone, a group or an organization, when things go badly for a great many people. As the owner of thousands of shares of IMB stock, worth about seven cents a share, I think I'm entitled to gripe with the best of them. However, I can't do anything about it and griping gets me nowhere, save perhaps lowering my blood pressure. I can though, as Kipling so beautifully put it, keep my head about me... and make the best of a bad situation. Ergo, I'm buying financials.