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The end of the beginning

Ashley Milne-Tyte Jul 2, 2008

The end of the beginning

Ashley Milne-Tyte Jul 2, 2008


Bob Moon: We’ve only just begun, and I’m not just talking about the start of the program.

In the past few days, one analyst borrowed from Churchill for this assessment of where we stand with the credit crisis: “We are not yet at the beginning of the end, but rather at the end of the beginning.”

Not withstanding more than $400 billion worth of assets that financial firms have already written off their books, a top analyst with Oppenheimer and Company is now expecting Merrill Lynch and Citigroup to announce billions more in writedowns.

So have they been holding out on us, too afraid to spill the bad news all at once and still breaking it to us slowly or are these fresh losses that signal things are really getting worse?

Ashley Milne-Tyte reports.

Ashley Milne-Tyte: Not much has gone right for investment firms lately. The stock market is tumbling and all sorts of loans are losing value.

Quincy Krosby is chief investment strategist for The Hartford. She says analysts expected writedowns would continue, but that they’d dribble in.

Quincy Krosby: And at some point the market just says “OK, we’re toward the end,” but the key here was that we expected that perhaps there would be a stabilization in the housing market and that just simply hasn’t turned out to be correct.

But some Wall Street firms aren’t being straight with investors, says Christopher Whalen of Institutional Risk Analytics. He points to the investment banks’ relationship with the bond insurers like MBIA and Ambac. Those companies have been downgraded, he says, and they insure what the banks own.

Christopher Whalen: So a little charade is ongoing and as long as Wall Street, the sell-side firms, are willing to pretend that the insurance held by Ambac and MBIA is in fact money good then they can pretend that similar stuff on their books is money good too.

Whalen says the longer Wall Street plays these games the worse damage will eventually be.

Whalen: The fessing up part, you know, the coming to Jesus, is going to be considerable. You know, I’d look for the second quarter to be nasty, third quarter’s gonna be nasty…

Some banks have opted to cut their losses and sell their dodgy loans. Whalen says Citigroup is selling half a trillion dollars worth. He says they’re going to lose a lot of money, but it’s better than holding on.

CIT group, a big fund manager, sold nearly $10 billion of mortgage assets yesterday. The company’s stock rose 30 percent on the news.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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