The credit crisis precipitated by the ongoing subprime debacle is likely to result in billions of dollars in additional losses for investors and investment banks. Fitch recently reported that writedowns for CDOs and subprime related losses already totaled $150 billion, but various experts believe that reported losses don’t begin to reflect the true extent of losses actually sustained in the recent downturn.
Now, UBS estimates that the world banks face the risk of up to an additional $203 billion in writedowns. Specifically, UBS has reported that CDOs could result in an additional $120 billion in losses for the banks and that the banks have an additional $83 billion in losses from structured investment vehicles (SIVs), commercial mortgage backed securities, and leveraged buyouts.
For institutional and individual investors, the situation may be even more serious. Recent investigations begun by criminal prosecutors and the SEC have raised serious questions about the valuations that various investment banks have placed on CDOs and subprime related loans. This, in turn, has raised questions about whether institutional and individual investors are really aware of what their holdings are worth.