April 21, 2009

IMF: $2.7 Trillion in Losses from U.S. Loans

The Wall Street Journal reports the IMF estimate of total financial system losses from 2007 through 2010 from bad U.S. loans to be $2.7 trillion dollars, and over $4 trillion from bad loans around the entire globe:

U.S. and European banks need to raise $875 billion in equity by next year to recapitalize banks to a level similar to the pre-crisis years -- and twice that amount to match the level of the mid-1990s, the International Monetary Fund estimated.

The steep funding requirements reflect a financial crisis that the IMF said continues to deepen along with the global recession. The banking sector's woes have spread from the housing sector to commercial real estate loans and emerging-market debt. Overall, the IMF estimates that the U.S., European and Japanese financial sectors face losses of about $4.1 trillion between 2007 and 2010. Of that amount, banks are confronting $2.5 trillion in losses, insurers $300 billion and other financial institutions $1.3 trillion.

The banking sector has already written down $1 trillion of those losses, said the IMF, which didn't estimate how much other financial firms such as insurance companies and hedge funds, have written down thus far.

"Without a thorough cleansing of banks' balance sheets of impaired assets, accompanies by restructuring and, where needed, recapitalization, risks remain that banks' problems will continue to exert downward pressure on economic activity," said the IMF's Global Financial Stability Report, its twice-yearly review of the world's financial sector.

While problems in the U.S. mortgage sector are generally blamed for the global financial crisis, the IMF report, showed there other regions played a big role too. About $2.7 trillion of the losses from 2007 to 2010 were attributable to the U.S. market, the IMF reported, while about $1.2 trillion came from bad loans and security losses in Europe.

U.S. banks have written down roughly half their anticipated $1.06 trillion in estimated losses from 2007 to 2010, the IMF said...

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