Goldman Sachs warned of deepening subprime woes for the world's largest banks yesterday, forecasting that massive writedowns at some banks will be almost double previous estimates.
Banks on Wall Street and around the world, including in Canada, have announced losses of more than US$70-billion tied to the U.S. subprimemortgage market.
But Goldman said those losses will rise significantly, forecasting its rivals Merrill Lynch & Co., Citigroup Inc. and JPMorgan Chase & Co. will take combined charges of US$33.6-billion in the fourth quarter of 2007, compared with earlier forecasts of US$18.7-billion.
Goldman said Citigroup's losses will rise from previous estimates of US$11-billion to US$18.7-billion, likely leading to slashed dividends and further capital-raising efforts at the world's largest bank.
Merrill's subprime losses will jump from US$6-billion to US$11.5-billion and JP-Morgan's losses will rise from US$1.7-billion to US$3.4-billion, according to the report from William Tanona, Gold-man's banking-sector analyst.
Most of the forecast losses relate to collateralized debt obligations (CDOs) -- a form of asset-backed security, often with a significant exposure to troubled U.S. subprime mortgages.
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