A cool $125bn to $250bn, according to Bloomberg, which stated rather boldly on Friday that a failure on the part of rating agencies S&P, Moody’s and Fitch to downgrade securities backed by suspect home loans was masking burgeoning losses.
Almost 65 per cent of the bonds in indexes that track subprime mortgage debt don’t meet the ratings criteria in place when they were sold, according to Bloomberg’s data.
“You’ll see massive losses from banks, insurance companies and pension managers,'’ Joshua Rosner, a managing director at New York investment research firm Graham Fisher, told the news service. “The longer they wait, the worse it’s going to be.”
Mr Rosner co-authored a study last month that said the main credit rating agencies understate the risks of subprime mortgage bonds. He estimates that losses related to collateralised debt obligations will hit $125bn. Meanwhile, Institutional Risk Analytics, a California-based company that writes computer programs for the four biggest accounting firms, says 25 per cent of the face value of CDOs is in jeopardy, or $250 billion.
Speaking up for the rating agencies, Brian Clarkson, Moody’s global head of the structured products in New York, told Bloomberg: “We’re taking action as we see it …We’re not doing knee-jerk responses.”
