Bank credit losses tipped to hit $1.6tn

9 July 2008

Global credit losses could reach $1.6 trillion due to the recent economic slowdown, one hedge fund has warned.

Bridgewater Associates has issued a warning that bank losses could exceed the International Monetary Fund's prediction of total losses of $945 billion.

A study from the hedge fund was leaked to Swiss newspaper SonntagsZeitung in which Bridgewater suggests there are "large doubts" about the banks' ability to cover the anticipated losses.

"We are facing an avalanche of bad assets. We have big doubts as to whether financial institutions will be able to obtain enough new capital to cover their losses," the report said.

"The credit crisis is going to get worse," Bridgewater added.

The group also warned that losses would rise if banks were forced to use "mark-to-market" systems to value structured credit, instead of the "mark-to-model" method which is currently being used.

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