Mamma Mia! You would truly have no ability to be shocked if you were not shocked by the enormous loss recorded by Citigroup for the 4th quarter and the even more enormous writedown of assets that caused it.
The nation’s largest bank said it lost $9.83 billion in the quarter, prompted by writing off bad loans in the subprime mortgage market to the tune of over $18 billion.
A couple of days later, another shoe of Brobdingnagian proportions dropped when Merrill Lynch reported a $10.3 billion loss for the quarter due to $11.5 billion in writedowns related to the subprime catastrophe.
This is getting to be reminiscent of the song ‘Ol’ Man River,’ wherein that body of water “just keeps rolling along.”
The Wall Street Journal reported on its front page on Jan. 17 some pretty staggering figures about the extent of subprime mortgages and how large a percentage of all residential loans they have constituted since 2001. It seems incredible, but in 2005 and 2006, subprime mortgages accounted for a bit over 20% of all residential loans, to the tune of $625 billion in 2005 and $600 billion in 2006.
It’s good to know the extent of the subprime loans in dollar terms. Now, if only somebody knew where all these loans are sitting and who is sitting on them!
Well, we know from Citi’s and Merrill’s results that they were, and probably still are, sitting on a ton of them. Part of the reason these two firms are getting hit so hard is due to guarantees they made or the fact that they dealt in some of these loans for themselves.