![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
S&P: Two years of problems ahead
The effects of the credit crisis could last up to two years, according to analysts at rating agency Standard & Poor's.
Azarchs named over-leverage and subprime exposure as the two main problems facing major financial institutions - of these, subprime was by far the more serious, she said.
"Over-exuberant underwriting created valuation issues for the loans, but it seems to be working its way through; I think banks will get out of it at the current mark-to-market and maybe with some clawback."
S&P listed 10 major banks with exposure to leveraged loans totalling $302.3 billion at the end of September; gross write-offs so far total $12.13 billion.
Write-offs in the mortgage-backed securities sector have been more severe - Citigroup and Merrill Lynch have both made write-offs of 27% of their total exposure, for example.
"What concerns us is the risk management implications," Azarchs said. "For example, Citigroup - how did banks allow such a large pileup of warehousing [these securities]?" Analyst Vicki Wagner added: "We still haven't seen the full effect of the mortgage malaise on the general economy. It could affect the economy across the board. The risk management capacity has fallen short in some cases, because the market was much more unpredictable and volatile than the technology could cope with."
See also: Morgan Stanley and Merrill Lynch reveal billions more subprime damage
Risk USA: Crowded trade increases turmoil again, say CROs
Risk USA: Rate cuts do not “bail out Wall St”
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Op risk data: Two Sigma pays the price for model mess
Also: KuCoin’s AML fail, Angola bribes bite Trafigura, and Trump’s green scepticism. Data by ORX News
Cool heads must guide financial regulation of climate risk
Supervisors can’t simply rely on ‘magical thinking’ of market discipline, says Sergio Scandizzo
‘More questions than answers’ in race to build repo plumbing
Complexity could slow development of matching and credit-checking tools for US Treasury trades
How Citi moved GenAI from firm-wide ban to internal roll-out
Bank adopted three specific inward-facing use cases with a unified framework behind them
Margin standards are here – and clearing firms aren’t happy
Clearing members complain that latest transparency proposals would force them to act as middlemen by providing margin simulation tools for clients
Riding the storm: banking in the era of climate risk
Climate-related risk is playing an increasing role in banks’ future strategies, resilience and prosperity
Buffer stop: Eurex clearing members shunt default fund
Clearing house’s CRO says both members and clients opt to pay more margin instead
How a serverless risk engine transformed a digital bank
Migrating to the cloud permitted scalability, faster model updates and a better team structure