5 November 2007

The next round of the credit crunch: two German banks reportedly in trouble

Frankfurter Allgemeine has a report according to which the defaults in the subprime sector are likely to be much higher than previously estimated. It recalled a Deutsche Bank forecast from July, which put the total global losses of this segment at $60-90bn. Now Josef Ackermann, chairman of Deutsche Banks, puts it at $150-250bn. There are now fears that there are more big write-offs to come. FAZ also names two German banks - WestLB and a specialised banks which serves doctors and pharmacists only - as possible next victims of the crisis.

Nouriel Roubini on the next phase in the credit crunch

In his blog in RGE Monitor, Nouriel Roubini says there is already another mortgage crisis in the offing. "If you are interested in understanding where the economy is going you should rather look at the ongoing disaster in credit markets – with a severe and spreading credit crunch - that will get uglier in the next few months as financial institutions are forced to mark to market massive – still unrecorded – losses on trillions of mortgages and related MBS and CDO tranches. With the ABX index for BBB- now down to the 20s and even the AAA tranches now down from par to 79 there are hundreds of billions of losses that no financial institutions has even started to account for. When allegedly AAA tranches of CDO trade at 79 cents on the dollar you know you have a massive and severe financial nightmare ahead. So, instead of the NFP report look daily at what the ABX indices are telling you about what is happening the economy and the financial sector."

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