Three more giant banks played a nerve-wracking round of junk-mortgage roulette yesterday – and lived only to play their dangerous game again in a few months.
British bank Barclays led the latest spectacle of profit-killing write-downs in assets that have been dragged down by shaky junk mortgages – with much of the paper in default and paying not a penny.
Barclays said it would write down $2.7 billion from the value of the tainted U.S. subprime mortgage debt on its books – less than analysts had expected. That sent its stock jumping 6 percent in London before it closed flat at 530.5 pence.
“They came in better than the market expected,” said analyst Mamoun Tazi at MF Global Securities Ltd. Barclays shares are down 27 percent this year due to the junk mortgages.
In Zurich, Swiss banking giant UBS fended off widespread speculation that it might have to write down another $7 billion of shaky paper by New Year’s.
It privately told analysts yesterday that it expects to suffer a much smaller fourth-quarter write-down of about $1.8 billion – and possibly even post a profit.
UBS two weeks ago posted a third-quarter loss of $712 million – its first quarterly operating loss in nine years. It blamed the write-down of $4.66 billion in securities contaminated by U.S. junk mortgage paper.
Although Wells Fargo announced a relatively small third-quarter loss of $16 million on its home loans, its CEO was gloomy about the state of the market.
“We have not seen a nationwide decline in housing like this since the Great Depression,” said Wells Fargo CEO John Strumpf, who took the job just four months ago.
He said losses on its $83 billion of mortgage paper could worsen in the fourth quarter and remain “elevated” through 2008.
In recent months banks have written down more than $45 billion in junk mortgage debt, and could write down as much as $400 billion before the crisis is over, analysts say.
Wells Fargo said it has sold most of the $2 trillion in home loans that it has originated since 2001 and invested relatively little money in the mortgage-backed securities that now are wrecking the books of bigger banks.
Barclays said there was no risk of further write-downs of Barclays’ residential mortgage-backed securities collateralized debt obligations, or CDOs. Barclays could get a cut in its credit rating, said Fitch Ratings.