Goldman paints bleak picture for housing, financials
NEW YORK Nov 20 (Reuters) - Goldman Sachs issued a gloomy report on the U.S. financial services sector, saying housing prices are likely to fall a lot further, write-downs will mount and some mortgage insurers and guarantors will be forced to raise capital just to survive.
Falling house prices and a worsening economy will drive down securities based on residential mortgages, especially those given to borrowers with the riskiest credit, Goldman Sachs financial analysts Lori Appelbaum, Thomas Cholnoky, James Fotheringham and William Tanona, wrote in a lengthy report released on Monday.
Meanwhile, the value of collateralized debt obligations -- bonds based on pools mortgages -- related to those subprime mortgages, could fall another $150 billion across the industry, the bank said.
That's on top of the $18 billion financial firms globally wrote down in the third quarter and the $22 billion that some companies have indicated they expect in the fourth quarter.
Share markets across the globe sank after an earlier report from the Goldman analysts downgrading Citigroup (C.N: Cotización) reignited fears that losses from the global credit crisis may widen.
Stock benchmarks in the United States fell to their lowest levels in three months on Monday. In Asia MSCI's measure of other Asia Pacific stocks .MIAPJ0000PUS hit its lowest level since late September. Financial stocks were among the worst affected.
Inevitability, certain financial guarantors and mortgage insurers will need to raise capital to shore up their balance sheets. The Goldman analysts said these companies will fall into two groups, the desperate -- those which will face the risk of going out of business if they don't raise capital -- and the needy -- those that could employ other means to do so, such as cutting dividends.
Goldman lists financial guarantors MBIA Inc (MBI.N: Cotización), Ambac Financial Group Inc, Security Capital Assurance Ltd SCA.N and Assured Guaranty Ltd (AGO.N: Cotización) as the desperate. It lists Citigroup Inc, Washington Mutual Inc (WM.N: Cotización), First Horizon National Corp (FHN.N: Cotización) and National City Corp NCC.N in the "needy" column.
Without the riskier loans such as subprime or no-or-low documentation mortgages, returns in the mortgage business will be significantly lower. Continuación...