S&P says end of subprime mortgage credit writedowns near

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Those mystic soothsayers over at S&P say that the write downs for subprime mortgage-related losses are nearing an end thanks to conservative valuations from large investment banks. Funny how these brilliant fortune-tellers can see the end, but never saw the beginning…

From the Market Watch article on S&P sees the end of subprime mortgage-related losses:

The global financial-services sector may end up writing down the fair value of such exposures by $285 billion, mainly from residential mortgage-backed securities and more complex vehicles known as collateralized debt obligations (CDOs), S&P estimated.

That’s up from a previous estimate of $265 billion published earlier this year, the agency noted.

“The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation write-downs of subprime” asset-backed securities, Standard & Poor’s credit analyst Scott Bugie said in a statement.

“Based on available information, we believe that the largest players can be seen as having undertaken a rigorous valuation methodology to come up with conservative valuations,” S&P analyst Tanya Azarchs said.

What’s funny is that the analysts have been tossing out the same argument since August of last year; when they announced that firms like UBS were taking conservative valuations on subprime losses. UBS ended up writing down an additional $10 billion after taking those conservative valuations.

Not everyone (including yours truly) is convinced:

Charles Rotblut, an analyst at Zacks Investment Research, wrote in a blog on Thursday that elation to the S&P news might be shortsighted.

“Credit is being given to Standard & Poor’s prediction that the end of the subprime meltdown is coming, but they also increased their estimate of the total loss by nearly 10%,” Rotblut said. “It’s hard to believe that this firm’s crystal ball is suddenly working.”

However, the agency also warned that the broader credit crunch has dented the market prices of many other types of securities in recent weeks. If this continues, banks and brokers could be hit by another round of write-downs, S&P said.

“A major re-pricing of credit risk is taking place across the debt markets,” S&P wrote. “If the wider spreads hold to the end of the first quarter or half of this year, financial institutions will suffer further market value write-downs of a broad range of exposures, including leveraged loans.”