Subprime Skeletons Still In Closets

Freddie Mac [[fre]] today reported a net loss of $151 million, or 66 cents a share, which was better than the 84 cent per share loss analysts had expected. Investors were happy with this, although in reality most of this was simply due to some new accounting rules which allowed Freddie to boost its earnings by around $1.3 billion. Freddie also said it would be raising $5.5 billion to help cushion any losses in its home loans. Considering that RealtyTrac, the online foreclosure site, reported it had seen a 65% increase in foreclosure notices compared to last year, lenders would need all the liquidity they can get.

Analysts are also concerned that British bank giant Barclays’ [[barc.l]] numbers might not add up and that it might have to report further writedowns tomorrow. So far Barclays has reported just $4.5 billion in writedowns which seems little when compared with HSBC’s [[hsba.l]] $18.3 billion or RBS’s [[rbs]] $11 billion. And if these numbers are so good, why have so many of the people running the credit businesses at Barclays Capital been shown the door in recent months? Is there something they - or their bosses - know that investors don’t?

Some are more optimistic though, Fitch Ratings believes that banks have already reported 80% of their subprime related losses. So if banks have already announced around $165 billion in losses and that is 80%, then there’s only around $41 billion left to go. According to Fitch, the biggest losses so far have been concentrated on just a few major banks like Citi [[c]], Merrill Lynch [[mer]], UBS and IKB which accounted for 60% of losses reported. So the big question is whether the bulk of the remaining $41 billion of subprime losses that Fitch estimates are yet to be made public, will come from these same banks, or whether it will be spread over a wider range of financial institutions.

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