US Economy - The gathering storm - by Grant Ringshaw and David Smith
Just when bankers and investors were hoping the worst was over, a second devastating wave of writedowns from major banks has rocked confidence. In recent weeks, Citi announced it would write down a further $6.4 billion in losses related to the sub-prime mortgage crisis. Merrill has also revealed more losses, while HSBC last week said it would take $45 billion back onto its balance sheet by rescuing two structured-investment vehicles. Last month Barclays wrote off $1.3 billion. More pain looks inevitable. Analysts expect Citi to be hit with a further $15 billion of writedowns. Investors will be nervously scrutinising a Royal Bank of Scotland trading statement this Thursday when the bank is expected to reveal sub-prime-related losses of more than £1 billion. Goldman Sachs analysts have estimated that the total sub-prime-linked losses could reach a whopping $500 billion – far higher than Federal Reserve chairman Ben Bernanke’s initial estimate of $50 billion, later revised to $150 billion. To add to the gloom there are mounting fears that the problems could engulf other types of American debt – credit cards, car finance and unsecured loans.
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