Sunday, October 14, 2007

Mortgage Market Woes: Latest Market Victims

by Amy Lillard

This year has been a year of ups and downs for the housing market. In our continuing series, we chronicle news affecting the housing market and its major players.

In a year that's seen some of the financial industry stalwarts stumble and fall, two more high-profile lenders are now added to the list.

UBS, Europe's biggest bank, announced it will report a loss in the third quarter due to lost value of securities backed by mortgages, to the tune of over $3.4 billion. Their chief financial officer and the head of the UBS investment bank are stepping down. Worst of all, the company announced plans to cut 1,500 jobs.

The loss is UBS's first quarterly loss since 1998. It shows proof that larger, international lenders are increasingly not safe from the subprime mortgage crisis affecting U.S. markets.

Analysts expressed surprise at the news, as the consensus expectation was for the bank to remain profitable. Rival Credit Suisse Group reported a profit for third quarter even after damage from the credit market roller coaster.

Final third-quarter figures for UBS will be issued on October 30.

Citigroup, the largest U.S. bank by market value, also issued distressing news on Monday. The lender is estimating a 60 percent drop in third-quarter earnings due to losses from subprime-mortgage-backed securities. They're predicting losses of about $1.3 billion in this area, and will also record a loss of $600 million in fixed-income credit trading because of market volatility.

Final third-quarter figures for Citigroup will be issued on October 15.

The losses are raising questions about whether other banks that have yet to report third-quarter results will suffer, or whether these stumbles could be one-time occurrences.

Others are questioning whether third-quarter figures are flawed.

For example, Lehman Brothers and Goldman Sachs have reported better-than-expected quarterly earnings last month. But their reporting period includes June, the last month of relative peace before the major market downturn. Some analysts have warned that earnings of banks whose third quarter includes June may be inflated, and alternatively, those that exclude the third quarter may be hit hard.

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