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Home > Cases > UBS > Billions in Additional Losses Forecast for Subprime Investors, Investment Banks

Billions in Additional Losses Forecast for Subprime Investors, Investment Banks

Subprime investors and investment banks are bracing for billions of dollars in additional losses as part of the fallout from the credit crisis and subprime mortgage disaster.

Recent reports from Fitch Ratings show that writedowns for collateralized debt obligations (CDOs) and subprime-related losses already total some $150 billion. Analysts, however, say the real extent of the losses sustained is yet to be known.

UBS estimates that the world's banks remain at risk of up to $203 billion in additional writedowns, largely because the bond insurance crisis may worsen. UBS also reports that CDOs could result in another $120 billion in losses for banks, followed by an additional $83 billion in losses from structured investment vehicles (SIVs), commercial mortgage-backed securities, and leveraged buyouts.

The outlook for institutional and individual investors is equally somber. Recent investigations by federal prosecutors and the U.S. Securities and Exchange Commission (SEC) are raising serious questions about the valuations some investment banks have placed on CDOs and subprime-related loans. This has created a growing concern as to whether institutional and individual investors are aware of the actual value of their holdings.

Several other reports have surfaced suggesting that the senior-most classes of CDOs — those deemed to have the least amount of risk — are worth between 15% and 35% of their face value. Bloomberg.com's Jody Shenn recently said the following on the subject: “Investors with experience with residential mortgage assets have been buyers, paying in the mid-teens to low 30 cents on the dollar for the senior-most or super-senior, classes of CDOs comprised of low-rated asset-backed bonds…”

Similarly, E-Trade has liquidated a $3 billion portfolio of CDOs and subprime-related securities for a reported 27% of face value. Credit Suisse also has reportedly liquidated Adams Square I CDO for less than 25 cents on the dollar.

The bottom line: In these times of uncertainty, it's wise for both institutional and individual investors to contact their financial advisers and determine the extent of their subprime exposure and how that exposure is valued.

In the summer of 2007, our group, who individually and collectively have extensive experience in representing investors against Wall Street, formed an affiliation. Our affiliation of lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage related investment losses. Contact us.


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