Global write-downs from the continued credit struggles of American Insurance Group Inc. and other large financial services firms could reach new highs of as much as $300 billion during the fourth quarter, Goldman Sachs Group Inc. analysts say.
Goldman analysts predict write-downs — the reduction in value financial firms will take on investments — of between $200 billion and $300 billion for the final three months of 2008. That compares with a quarterly average of $150 billion to $200 billion to date, the analysts said after wrapping up the bank’s annual financial-services conference.
Goldman expects the fourth quarter’s total write-downs to escalate as the credit crisis mushroomed in the middle of September with the bankruptcy filing of Lehman Brothers Holdings Inc., the sale of Merrill Lynch & Co. to Bank of America Corp. and the government bailout of insurer AIG, parent of Hartford Steam Boiler Inspection and Insurance Co.
Amid the many presentations from major financial firms at Goldman’s conference, BlackRock Inc. executives noted that November was the worst month for asset prices since the beginning of the credit crisis in the middle of 2007, according to a research note released by Goldman Sachs.
The credit crisis began as mortgages, especially subprime loans given to customers with weak credit history, started to increasingly default in 2007. As mortgages defaulted at higher rates, investors shied away from purchasing bonds backed by the troubled loans and other forms of debt deemed risky.
More types of loans began to default as well and the credit markets began to seize up. As that happened, and with few buyers, the prices for some assets financial firms were left holding plummeted. Based on accounting standards, many financial firms are forced to cut the value of their holdings to match current market prices, which has led to hundreds of billions of dollars in write-downs since the middle of 2007. (AP)
