Box crumbly banks make loans

Banks and other investors face losses of billions of new structured products. The background is that the rating agencies in their reviews of these products increased the risk of undertaking.

Moody’s is about the credit scores of over 900 so-called synthetic Collateralised Debt Obligations (CDO) worth approximately $ 150 billion check. Lowering the ratings of the products, forcing the banks to keep such products, to new write-offs.

CDOs are investment pools that invest in loan portfolios. Synthetic CDOs are no loans, but derivatives on these loans, such as corporate credit derivatives (credit default swaps, CDS).

Structured products are affected by the crisis have been particularly badly hit – the market has largely dried up. So far, however, were those pools in the center of interest, which in U.S. home loans were invested. With the economic downturn back loans to companies in the foreground.

Exposure of firms rises

Moody’s foresees a 30 percent higher probability of failure in business loans, with the synthetic CDO related. The bulk of the credit scores of the synthetic CDO, the derivatives on corporate loans go back, could be reduced – some by up to seven levels. JP Morgan estimates that the outstanding volume of synthetic CDO tranches, are based exclusively on enterprise credit derivatives based on $ 757 billion.

In December, the competitor had Standard & Poor’s (S & P) announced, 197 tranches of similar products, so-called Credit Loan Obligations (CLO), from 127 pools in the value of $ 3.89 billion to be reviewed. Assumptions and methodologies should be reviewed, as S & P then.

The rating agencies have long accused the risks of complex investment products in their credit ratings are not sufficiently taken into account and too long to have waited downgrades.