S&P Lowers or May Cut $534 Billion of Subprime Debt

Looks like the rating agencies have finally updated their model for subprime.... Next stop Monolines ( see MBIA: Another morning, another monoline crisis… or Open Letter On Bond Insurer Transparency From A Short Seller. )....

Es sieht so aus als wenn zumindest im Bereich Subprime die Schadensmodelle der Ratingagneturen endlich in der Realität angekommen sind.... Nächster Halt dürften dann wohl die Kreditversicherer sein ( siehe MBIA: Another morning, another monoline crisis… oder Open Letter On Bond Insurer Transparency From A Short Seller. )......

This comment from Calculated Risk sums it up

Dieser Kommentar von Calculated Risk faßt das Ausmaß wunderbar zusammen

According to the Fed Flow of Funds report, household have $10.4 rillion in mortgage debt. S&P's announcement today alone is for about 5% of that debt.

Jan. 30 (Bloomberg ) -- Standard & Poor's said it cut or may reduce ratings of $534 billion of subprime-mortgage securities and collateralized debt obligations, as home loan defaults rise.

The downgrades may extend losses at the world's banks to more than $265 billion and have a ``ripple impact'' on the broader financial markets, S&P said.

The securities represent $270.1 billion, or 47 percent, of subprime mortgage bonds rated between January 2006 and June 2007, S&P said today in a statement. The New York-based ratings company also said it may cut 572 CDOs valued at $263.9 billion.

The downgrades may increase losses at European, Asian and U.S. regional banks, credit unions and the 12 Federal Home Loan Banks, S&P said. Many of those institutions haven't written down their subprime holdings to reflect their market values and these downgrades may force their hands, S&P said.

``It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks,'' S&P said. The ratings company will start reviewing its rankings for some banks, especially those that ``are thinly capitalized.''

S&P downgraded $50.1 billion of subprime-mortgage securities, none rated higher than A+. More than 69 percent of the AAA rated subprime securities from 2006 and 46 percent from the first half of 2007 were placed on review.

Didn't See It
``This one, I didn't see coming,'' said Mark Adelson a consultant at Adelson & Jacob Consulting LLC in New York, and a former asset-backed bond analyst at Nomura Securities.

Some of the largest global banks have already taken ``significant'' losses and they aren't likely to have more writedowns, S&P said.

Under accounting rules, many smaller banks haven't been required to write down their holdings until the credit ratings fell, enabling them to avoid the losses that have crippled Citigroup Inc., Merrill Lynch & Co. and UBS AG. The world's largest banks have reported losses exceeding $133 billion related to mortgages, CDOs and leveraged loans.

``If you're holding a AAA piece and it's now downgraded to AA, you might have to write it down, even if you're holding it for an investment,'' Gary Gordon, a bank stock analyst at Portales Partners LLC in New York, said. ``The longer it goes on and the higher the credit rating of the instrument downgraded, the wider the pain.''