Originally posted by NotAllThere
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Reply to: What are credit writedowns in banking ?
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Previously on "What are credit writedowns in banking ?"
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These days they think of a large figure, write it down, and tell the shareholders and press "That's how much we lost" so we're putting up the interest rates again. Bonuses and trebles all round.
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Originally posted by Likely View Posthttp://news.bbc.co.uk/2/hi/business/7540404.stm
How exactly banks make losses from credit writedowns ? What exactly is meant ?
HTH
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Originally posted by Likely View Posthttp://news.bbc.co.uk/2/hi/business/7540404.stm
How exactly banks make losses from credit writedowns ? What exactly is meant ?
A lot of investors are now finding that these CDOs aren't worth as much as they thought, and they are being constantly revalued by the holders and any difference in value between the last valuation and this one is written off as a "credit writedown".
For example, last week Merril Lynch sold some of their post-1996 CDOs for only 22c on the dollar, with the balance being written off.
The point to note is that these aren't bad debts that the investing banks hold, they are investment bonds that are not worth as much as before - the risk of the US mortgages defaulting has been sold to investors but not the right to reclaim the underlying assets (e.g. the house). It's a bad investment, not a bad debt.Last edited by meridian; 5 August 2008, 16:26.
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Originally posted by DaveB View PostA write down is another term for writing off a bad debt. Essentially the bank involved has around 3 billion in bad loans on it's books that it no longer expects to recover, as a result it has to allocate cash from the business to cover the value of these loans as they can no longer be listed as an asset. This has an effect on the final profits of the co. In this case the value of the bad loans they had to write down exceeded the profits for that quater, hence they mad a loss.
At least I *think* thats what it;s all about. I'm not an accountant and quite frankly a lot of this stuff just makes my head spin.
I guess commercial lending is similar in that some loans will be secured against assets and some are plain cash advances. A friend of mine went bust - his assests were seized (catering equipment) and sold at auction for 1/10 of what they were worth. So I guess the rest of his £40,000 business overdraft was written off! Yikes.
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Originally posted by DaveB View PostA write down is another term for writing off a bad debt. Essentially the bank involved has around 3 billion in bad loans on it's books that it no longer expects to recover, as a result it has to allocate cash from the business to cover the value of these loans as they can no longer be listed as an asset. This has an effect on the final profits of the co. In this case the value of the bad loans they had to write down exceeded the profits for that quater, hence they mad a loss.
At least I *think* thats what it;s all about. I'm not an accountant and quite frankly a lot of this stuff just makes my head spin.
Leave a comment:
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A write down is another term for writing off a bad debt. Essentially the bank involved has around 3 billion in bad loans on it's books that it no longer expects to recover, as a result it has to allocate cash from the business to cover the value of these loans as they can no longer be listed as an asset. This has an effect on the final profits of the co. In this case the value of the bad loans they had to write down exceeded the profits for that quater, hence they mad a loss.
At least I *think* thats what it;s all about. I'm not an accountant and quite frankly a lot of this stuff just makes my head spin.
Leave a comment:
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Originally posted by Likely View Posthttp://news.bbc.co.uk/2/hi/business/7540404.stm
How exactly banks make losses from credit writedowns ? What exactly is meant ?
HTH
Leave a comment:
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What are credit writedowns in banking ?
http://news.bbc.co.uk/2/hi/business/7540404.stm
How exactly banks make losses from credit writedowns ? What exactly is meant ?Tags: None
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