Sun, Nov 11, 2007 - Page 11 News List

Three big US banks warn of more credit losses, Barclays denies huge writedown

NY TIMES NEWS SERVICE , NEW YORK

Three big banks warned on Friday about continuing losses in the credit markets, while Barclays of London denied speculation that it was facing a huge writedown of assets.

Wachovia made its disclosure first, saying in a morning regulatory filing that it lost about US$1.1 billion last month on assets backed by loans and that it planned to increase its reserves for loan losses in the fourth quarter by US$500 million to US$600 million because of further deterioration in the housing industry.

Later in the afternoon, Bank of America and JPMorgan Chase issued regulatory filings warning that their fourth-quarter results would most likely be hurt by turmoil in the credit markets.

In its filing, Bank of America, which is based in Charlotte, North Caroline, said that during the third quarter "extreme dislocations emerged in the financial markets, including leveraged finance, subprime mortgage and the commercial paper markets" and that it expected the disruption to threaten future results.

The company did not make a prediction about the effect on its books, but it said that as of the end of September, it had provided a net amount of US$12.8 billion in liquidity support for commercial paper issued by collateralized debt obligations, or CDOs. Of that amount, US$9.8 billion is mainly backed by subprime mortgage securities.

The company was also holding more than US$3 billion in exposure to CDOs through its structuring, warehousing and trading activities, with more than half backed by subprime securities.

JPMorgan also did not estimate any possible writedowns but said in its filing that it held US$40.6 billion in leveraged loans and unfinanced commitments at the end of September.

"These positions are difficult to hedge effectively and further markdowns could result if market conditions worsen," it said.

The company also said it had US$6.8 billion in CDO warehouses and unsold positions. In the third quarter, JPMorgan wrote down US$1.3 billion on leveraged loans and US$339 million on CDOs. The company warned in its filing that it might have to increase its provisions for loan losses.

The reduction in value of Wachovia's investments was the latest in a series of writedowns from big financial companies and underscored the gravity of the crisis in housing-related investments.

Merrill Lynch, Citigroup, Morgan Stanley and the American International Group have reported billions in writedowns over the last few weeks, leading to the departures of chief executives at Merrill and Citigroup. It also shows the struggle for a bank outside New York to compete against more established Wall Street rivals.

Wachovia had already recorded US$1.3 billion in losses and writedowns in the third quarter related to turmoil in the credit markets. In its filing, the company said that the value of its CDOs fell to US$676 million at the end of last month from US$1.8 billion just a month earlier.

Separately, shares of Barclays, one of Britain's largest banks, dropped as much as 9 percent in London on speculation that it might announce writedowns of as much as £10 billion (US$21 billion) and that its chief executive could step down.

Barclays, which is scheduled to provide information about its finances on Nov. 27, has repeatedly been at the center of speculation about writedowns for assets linked to US subprime loans. Analysts at Sanford C. Bernstein & Co wrote in a report this week that Barclays might have to write down £1.6 billion in the second half.

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