US banks to reveal sub-prime losses

17 September 2007

US investment banks will this week report their third-quarter profits and provide the clearest indication yet of the full damage incurred by this summer's financial turbulence.

Analysts have predicted that Lehman Brothers, Bear Stearns, Morgan Stanley and Goldman Sachs may have to write down as much as ten per cent of leveraged loans which have been agreed but not syndicated, City AM reports.

A filing from Merrill Lynch has already warned that it has been forced to make "fair value adjustments" as it faces potential losses and noted that there was "significant risk" of further exposure, according to a report from the Reuters news agency.

The banks expected to be hardest hit are Bear Stearns and Lehman Brothers since a larger proportion of their revenue comes from fixed income sales and trading than their rivals.

The third quarter reporting season comes as recent statistics showed that the combined share prices of the four banks fell 22 per cent during the period as a result of the fears over their exposure to the crisis in the US sub-prime mortgage market.

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