In a gloomy report published today, the ratings agency says the current capital market conditions and continuing negative news from the US mortgage market will lead to another large wave of write-downs in the second half of 2008.
And institutions already battered from massive capital raising over the last year to compensate for securities losses will be hit hard.
Scott Bugie, credit analyst at S&P, says: “The success in future capital raising, through issues or asset sales, to compensate for additional securities write-downs, will be the key factor driving the credit ratings on many global financial institutions in the second half of this year.”
It says the present market conditions are less favorable, and financial institutions face this next wave of write-downs with reduced opportunities to raise additional capital.
Out of the $300bn in write-downs of mortgage-backed securities and leveraged loans seen in the first half of 2008, a whopping 40% of this was made up of just three firms – Citigroup, Merrill Lynch and Swiss-giant UBS.
It says the rare true sales of sub-prime MBS in 2008 were at depressed prices and it predicts this to get worse over the second half, especially in the light of the collapse of Lehman Brothers last week.
It says the unwinding of the group’s trades will place additional downward pressure on values of non-prime MBS via forced sales under unfavorable market conditions.
S&P says it expects financial institutions with material residual balances of nonprime MBS to take significant additional write-downs in second-half 2008.”