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Monthly Archives: January 2008

Yet Another Subprime Write-Off

 UBS announced today that it would be writing-off $14 billion in losses due to the declining U.S. housing market.  In addition, UBS announced it would post a net loss for 2007.

The New York Times is reporting that $12 billion in losses relate to positions in the U.S. subprime market and an additional $2 billion on other positions related to the U.S. residential mortgage market.  

To date, major banks have announced over $135 billion in write-downs due to the troubled housing market and subprime lending crisis. Those numbers are expected to grow. UBS joins Merrill Lynch, Morgan Stanley, Citigroup and others in experiencing significant write-offs over the past several months.   

The cause of these write-offs are largely collateralized debt obligations (or CDOs). These very complex securities are created when pools of debt, often tied to subprime mortgages, are packaged and sold to investors. While many of these products have fallen into the portfolios of individual and institutional investors, some have remained on the books of the world’s largest banks. It is only a matter of time before the losses that are being reported daily by the banks are felt by investors as well.   

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