The total amount of write-downs facing financial institutions over asset-backed securities was increased by another $20 billion, according to Standard & Poors, but this may mark the end of bad news for those firms.
A report today from Scott Bugie, a credit analyst for S&P, said write-downs could reach $285 billion for the global financial sector, up from $265 billion estimated at the end of January. So far the total value of write-downs of subprime asset-backed securities disclosed by financial institutions is $150 billion, according to the report.
The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation write-downs of subprime ABS, the report says. We believe that the largest players, such as Merrill Lynch & Co. Inc. and Citigroup Inc., have rigorously and conservatively valued their exposures to subprime ABS such that most of the damage should be behind them. Indeed, these institutions may benefit from future recoveries in market prices if the performance of subprime borrowers stabilizes and risk premiums for uncertainties dissipate.