What? It’s not the short sellers?
Not according to S&P. Rather, the key risk remains the mortage markets:
NEW YORK Sept. 18, 2008–Second-quarter 2008 saw no letup in the global mortgage market turmoil, and financial institutions are feeling the stress.
Contributing to the extremely volatile situation are weaker economic conditions, continued home price declines in the U.S. and other global markets, and the absence of reliable liquidity in even the most plain-vanilla mortgage markets. Central bankers worldwide continue to offer nontraditional liquidity alternatives for mortgage assets given the weakened state of wholesale and secondary market liquidity.
“For the global financial institutions sector, we expect weak mortgage credit trends to continue into mid- to late-2009 with lenders suffering elevated mortgage-related losses that gradually subside in late 2009 and 2010. This scenario assumes very slow growth, if not recessionary economic conditions,” said Standard & Poor’s credit analyst Victoria Wagner.
The U.S. clearly is facing the most severe mortgage credit stress, as losses posted in subprime, prime, and second-lien mortgages have reached new industry-high loss rates. “We do not expect credit losses to be of the same magnitude in other key global mortgage markets, given that subprime and second-lien mortgages were much less established outside the U.S. However, credit losses will gradually rise from minimal levels reached in recent years, following the sharp correction in a number of housing markets and simultaneous economic slowdown after several years of spectacular boom in mortgage lending,” added Ms. Wagner. It remains to be seen whether the degree of stress both in these countries and elsewhere will be the same as in the U.S. markets.
