Another bad week on the economic front. Wall Street is still hovering around the 12,400 mark because people still think there’s money to be made, somewhere. That’ll change soon enough.
But it’s bad news all around from the money world, staring with massive subprime losses for UBS.
UBS AG fell in Swiss trading after Citigroup Inc. said Europe’s biggest bank by assets may have to write down as much as 20 billion Swiss francs ($18.3 billion) this year on securities infected by the subprime debacle.
$18 billion or so is decent money. Losses from subprime shenanigans continue to pile up. They will continue to get larger. Six weeks ago we thought $5 billion was a massive, disastrous write-off. Now $18 billion is the norm.
UBS lost as much as 6.6 percent, or 2.46 francs, to 35 francs, extending yesterday’s 8.3 percent decline. They traded 5.1 percent, or 1.92 francs, lower at 35.54 francs by 2:17 p.m.
Some $80 billion in securities at risk from the debt market turmoil may prompt writedowns this year of between 12 billion francs and 20 billion francs for UBS, Citigroup analysts Jeremy Sigee and Kiri Vijayarajah wrote in a note to investors. The Swiss bank yesterday reported $26.6 billion of additional positions in U.S. mortgages at the end of 2007.
“UBS’s latest unveiling of risk exposures reveals bigger than expected Alt-A and other positions that are likely to require further markdowns,” the analysts wrote in the note, dated Feb. 14. “With markdown and capital risks still haunting UBS, we remain cautious.”
Morgan Stanley analysts Huw van Steenis and Solveig Babinet said today they expect UBS to pay “little or no cash dividend in 2008.”
UBS spokesman Serge Steiner declined to comment on the analysts’ notes.
UBS fell to a four-year low yesterday after the U.S. subprime mortgage crash led to a record loss and Chief Executive Officer Marcel Rohner declined to predict whether the bank will return to profit this quarter.
Return to profit this quarter? I’d be worried about returning to profit this year. Another $200 billion in losses are on the way for banks.
Meanwhile the monoline nuke continues to prime for a detonation that could wipe out trillions. The latest victims: municipal bonds.
The credit crisis is spreading from Wall Street to Main Street.
Investors are starting to shun municipal bonds, the debt securities that states and cities issue to fund everything from sewer projects to new schools. Though muni bonds have long been considered among the safest investments, few are buying them because of worries about the safety of bond insurers that back the bonds.
On Tuesday, two muni auctions failed to find buyers, and experts said that was the first time this had ever happened. Conditions have only worsened since then, they explained.
As a result, states, counties, cities and towns around the nation now are being forced to pay sharply higher short-term interest rates, in some cases as much as 15 percent.
If you don’t think the monoline issue affects where you live, you’d better believe it will when local, county, and state taxes skyrocket because of the rates governments have to pay on the bonds they owe. When they can’t meet those payments, you’ll be meeting them, one way or another. Bankruptcy…coming soon to a town near you!
But the big news is that the consumer spending engine is self-destructing.
U.S. stocks dropped for a second day after consumer confidence fell to a 16-year low, manufacturing in New York unexpectedly contracted and concern grew that banks’ losses will widen.
The younger folks in the digital generation have never seen anything like this. They’re too young to really remember the bad times of stagflation and voodoo economics. It’s never been this bad for them. It’s going to be a rude awakening. Their idea of a bad economic time is the dot-com bust.
Confidence among U.S. consumers dropped more than expected this month as the labor market cooled. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 69.6 this month from 78.4 in January, the lowest since February 1992.
Every week brings more bad news, more signs that this isn’t going to be a “short mild recession” but a major economic disaster if not a full blown depression.
When the banks start failing, when the local governments start declaring bankruptcy, when the layoffs start numbering in the hundreds of thousands, then it will be too late.
In a lot of ways, it already is too late.
