Is the worst of the bad-debt problems really over for banks?
Several financial institutions have been telling investors this week that losses from subprime and other troubled loans may not be as big as feared. Yet after bank stocks rallied earlier this week on hopes of a recovery, investors are now wondering if it's all just wishful thinking.
"The new (bad-debt) announcements might be a little smaller than the old ones, but it's still going to be a long parade of them over the next few weeks," Jim Iuorio of TJM Institutional Services said on CNBC Thursday. "Whenever one gives us good news someone else gives us bad."
The biggest problem, as many financial firms acknowledge, is that they don't really know yet how much more their subprime holdings will decline in value--and lead to further writedowns. That uncertainty makes it difficult for most in the industry to say the worst is over.
"When you look at the smaller regional banks, or the insurers, we just don't know where that's going to shake out," Dan Genter, head of RNC Genter Capital Management, told CNBC. "You're flying through the clouds, you can't see the ground, and you can't see if there's a mountain in front of you."
For those keeping score at home, here's a roundup of what some financial firms have been saying about their debt problems in the past few days.
Barclays Loss Smaller
Barclaysrevealed less damage than feared from the U.S. subprime mortgage meltdown. Britain's third-biggest bank said its investment banking unit had made a $2.7 billion write-down due to the credit market problems of the past four months -- far less than many estimates.
Barclay's shares initially jumped more than 6 percent on Thursday, but pared gains as analysts said growth this year and next will be restricted, and that market conditions remain unpredictable.
"The Barclays statement represents current knowledge of their problems," said Peter Dixon, UK economist at Commerzbank. "It doesn't necessarily mean that there won't be problems in the future. Uncertainties still remain the order of the day."
In a similar vein, Swiss banking giant UBS moved to douse speculation it would book fourth-quarter write-downs in the order of $8 billion. Still, it said it did not yet know if it would make further charges in subsequent quarters.
A spokesman said the Swiss bank was not keeping more writedowns in reserve with the intention of spreading the charges over several quarters. "We are not holding back further charges," he said.
UBS reported its first quarterly loss in five years at the end of last month after writing down $3.92 billion of subprime-linked exposures.
NovaStar: Bankruptcy Possible
NovaStar Financial shares sank by roughly half on Thursday after the company, which has halted subprime mortgage lending, quarterly posted a big loss and said bankruptcy is possible.
The company late Wednesday posted a $598 million third-quarter loss, or $64.05 per share. Results reflected a nearly ten-fold increase in bad loans, mortgage write-downs, higher legal bills, a charge to end the company's real estate investment trust status, and other items.
Meanwhile, Wells Fargo , which has sidestepped many of the credit and liquidity problems plaguing U.S. mortgage lenders, believes the nation's housing slump is the worst since the Great Depression and is far from over, Chief Executive John Stumpf said.
Stumpf nevertheless said the second-largest U.S. mortgage lender and fifth-largest U.S. bank is well-positioned to ride out the storm, despite expectations for "elevated" credit losses from home equity loans into 2008.
"We have not seen a nationwide decline in housing like this since the Great Depression," Stumpf said at a banking conference in New York. "I don't think we're in the ninth inning of unwinding
this," he continued, using a baseball reference. "If we are, it's an extra-inning game."
Lehman 'Very Comfortable'
On Wednesday,Lehman Brothers said it doesn't expect substantial write-downs of its most illiquid assets.
Co-Chief Administrative Officer Ian Lowitt said the investment bank remains "very comfortable" with its valuation of so-called level 3 assets on its books. Level 3 assets trade infrequently and are valued based on a bank's own estimates.
Lowitt added that the asset-backed securities business, which is currently in a deep freeze, will come back eventually.
Bear Stearns, which on Wednesday announced $1.2 billion of write-downs in the fourth quarter, was downgraded on Thursday by Standard and Poor's because of the writedown and subprime mortgage exposure.
-- Reuters contributed to this report.