Banks projected to lose $52bn over sub-prime mortgage crisis

10 July 2007

Losses for investors on bonds backed by US sub-prime mortgages could total $52 billion, it has been predicted.

The projection comes after analysis from Credit Suisse and represents a figure towards the lower end of the spectrum from the size of losses that had initially been predicted.

According to projections from the analysts, some $5 billion to $15 billion-worth of losses are expected to be incurred by investment banks.

However, hedge funds are set to be harder hit, it is predicted, since ordinarily they hold the parts of CDOs that are first in line for losses.

Meanwhile, European banks are expected to escape most lightly of all.

The report said: "European banks tend to be among the most conservative buyers of COD paper and we estimate that their share of losses will be much smaller than that of the US banks."

News of the analysts' predictions follows the news that two funds overseen by Bear Stearns, which had invested heavily in subprime mortgage sector, were on the point of collapse.

Bear Stearns has earmarked $1.6 billion to rescue one fund, while the other is to wound-up.

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