IB Results - Subprime write-downs

djanklod · Post by **djanklod** » Sat Sep 22, 2007 7:16 am

Just out of curiosity, any insights on the "methods" that have been used by the various banks publishing their results this week to decide that their sub-prime write-downs while not small were actually not that bad? I can't imagine they're getting many quotes to mark their books, so any views on the models they might be using? do they really have enough competent staff to do loan level analysis on their assets?

Also, has anybody seen a change in the tone of the research published by these firms?

Credit Correlation · Post by **Credit Correlation** » Mon Sep 24, 2007 2:32 am

Good point.

In the absence of real marks that would clear the market,

one has to ask the simple question of what is their notional

exposure to subprime?

I would guess Lehman has considerable sup-prime exposure,

despite reporting good 3Q2007 earnings.

At the same time Goldman reported excellent 3Q2007 earnings

claiming that they had *shorted* sup-prime.

So in that case the question is what are the marks on their shorts?

Given the lack of liquidity in ABS right now, all PL gains and losses

are a matter of speculation.

SirAppleby · Post by **SirAppleby** » Mon Sep 24, 2007 7:13 pm

Apparently under FAS 159 markdowns in your issued debt (liabilities) can be used as a hedge to offset losses on the asset side of the balance sheet. It will take some time before the market can figure out how the IBs weathered the credit storm.

http://www.financialweek.com/apps/pbcs.dll/article?AID=/20070924/REG/70921033/1008/HUMANRESOURCES

gill · Post by **gill** » Mon Oct 01, 2007 11:00 am

I guess it's a very political question in banks. UBS is a good example. New CEO came in July and was quite keen to remark everything as low as possible, that's why the bank reported overall loss. At the other places the old teams are around therefore valuation is still very aggressive...