Business | Banking
US banks likely to lose $325b of capital
Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime US mortgages, JPMorgan Chase, said in a report.
- Reuters
- Published: 00:02 March 9, 2008
New York: Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime US mortgages, JPMorgan Chase, said in a report.
JPMorgan, which sent a default notice to Thornburg Mortgage after the lender missed a $28 million margin call, said more default notices and margin calls were likely.
The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls last week.
"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterise this situation as a systemic margin call."
The credit crisis that began about a year ago will likely intensify after Friday's weak February US employment report "that most definitely signals recession," JPMorgan said.
Corporate bonds
Indeed, corporate bond spreads widened to a new record on Friday, surpassing levels seen in October 2002 during a boom in bankruptcies following the dotcom crash.
US employers cut payrolls in February for a second consecutive month, slashing 63,000 jobs, the biggest monthly job decline in nearly five years, the Labour Department said.
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