Subprime Hits To Keep Coming(WSJ)

Subprime Hits
Seem Likely
To Keep Coming

Banks Like UBS, Citi
May Face More Charges
Than They've Yet Taken

By CARRICK MOLLENKAMP, DAVID REILLY and EDWARD TAYLOR
November 15, 2007; Page C1

Just weeks after some of the world's largest bankstook tens of billions of dollars in losses on their holdings of debtlinked to tainted mortgages, a new concern is emerging: It might nothave been enough.

Expectations are growing that UBSAG may face fourth-quarter write-downs of as much as eight billionSwiss francs, or $7.11 billion. Investors and analysts believe that CitigroupInc. may face more pain after announcing last week that it expected totake write-downs of $8 billion to $11 billion in the fourth quarter. Inthe third quarter, Citigroup recorded mortgage-related write-downs of$1.8 billion, while UBS took 4 billion francs in losses.

•  Problem: Shifting mortgage-securities markets and incorrect assumptions could mean a new round of write-downs for some banks.

•  Behind the Numbers:Banks with exposure to subprime securities, including CDOs, are takingmarkdowns on the assets, and investors wonder if they're using the sameplaybook.

•  Going Forward: Bank investors may have to wait until the end of the first quarter, or longer, before there's better clarity on asset values.

Today, British bank BarclaysPLC is expected to announce its own write-downs, according to a personfamiliar with the situation. While the bank has been dogged by rumorsof a $10 billion U.S. hit, analysts say they expect a write-down of£1.4 billion to £1.5 billion ($2.9 billion to $3.1 billion). Awrite-down of that amount would lessen investor fears. Additionally, nomajor departures are expected at the bank's Barclays Capital unit.

Some banks that have recently reported write-downs -- such as Merrill Lynch& Co. -- have put significantly lower values on holdings of some ofthese securities than others have. To be sure, not all CDOs are thesame. But analysts say the comparisons suggest that banks such as UBSand Citi, if they mark down as much as Merrill, may have to recognizemore losses. A UBS spokesman said the company is adhering to theoutlook it provided Oct. 30, when it said that the investment banklikely would report a fourth-quarter loss but that the bank overallshould restore profit in the period.

Citigroup Chief Financial Officer Gary Crittenden toldinvestors on a conference call last week that, as the bank valued itsholdings, it "took into account a wide range of discount rates as wellas different collateral values that might impact their valuation." ACitigroup spokeswoman declined to comment further.

Despite attempts by banks to give more informationabout the cause of the write-downs, the complexity of the securitiesinvolved, the degree of judgment involved in valuing them and the factthat they are often held off the balance sheet make it tough forinvestors to get a handle on the risks still lurking.