Saturday, September 6, 2008

Chart for Saturday: Total banking losses to date

The global financial system is suffering. Banks losses mounted in the fourth quarter of 2007 and the first quarter of 2008 and continue to grow. Further, with uncertainty over counterparty risk, raising capital has been difficult, and total capital raised is still $149 billion short of losses written down.
It should be noted that the data does not include losses nor capital raised by several key players in world capital markets: Fannie Mae and Freddie Mac, Sovereign Wealth Funds, and Pension Funds. Therefore, the losses may be far higher than what is presented (huge losses by Fannie Mae and Freddie Mac), and the capital raised may far greater than what is presented (Sovereign Wealth Funds buying up assets).

Total world losses to date (with more to come) are $507 billion, and world capital markets are very closely linked. Europe, with its $229 billion in losses to date, is suffering just slightly less than the Americas, with its $255 billion to date, and it was the U.S. mortgage market that initiated the financial meltdown. Asian bank losses are minimal compared to Europe and the Americas.

As I argued here, the maelstrom of losses hit the financial markets has stayed mostly contained in the financial sector. However, the re-emergence of potential growth for economies spanning the globe depends on the stabilization of the banking sector. And clearly, it could get a lot worse before it gets better. When do you think that the banking sector will heal?

Please leave comments. Best, Rebecca Wilder


  1. Since the feds stepped up last night, Freddie and Fannie are now formally under the governments wing. I was especially pleased to hear they are getting rid of top management at both. The gov't plan to NOT give them a huge chunk of change is great. Funds as needed seems a prudent way to go as people have a tendency to spend what they have. Whoopee!

  2. ps: it changes the ballgame in the financial markets, doesn't it?

  3. I am not sure how much the ballgame will be change with the bailout of Fannie Mae and Freddie Mac. Issues over couterparty risk, not knowing exactly how wrapped up into bad assets each firm is, will not go away with the government bailout. Financial firms may still have problems raising capital as mortgage defaults and losses continue to mount (see yesterday's post). One bank that is neck-deep in losses is Lehman Brothers; so far, then have been able to raise enough capital (actually 5.7 billion more) to cover their losses related to securitized assets, but I heard that they will lay off 12,000 workers tomorrow. Who knows how deep it will go. Will Lehman be the next to fall?

    To be sure, the bailout does insure-better the health of the US housing market. I am sorry I cannot give you more. At the minimum, banks may be more willing to make mortgage loans knowing that the government is now explicitly backing up the secondary mortgage market.

    Only time will tell how this plays out.

    Thanks for the great comments! Rebecca