Paulson & Co. Founder Says Bank Writedowns, Losses May Reach $1.3 Trillion

[marmar]

from Bloomberg:



Paulson & Co. Says Writedowns May Reach $1.3 Trillion (Update2)

By Tom Cahill and Poppy Trowbridge

June 18 (Bloomberg) -- John Paulson, founder of hedge fund Paulson & Co., said global writedowns and losses from the credit crisis may reach $1.3 trillion, exceeding the International Monetary Fund's $945 billion estimate.

``We're only about a third of the way through the writedowns,'' Paulson, 52, told the GAIM International hedge fund conference in Monaco today. ``There are a lot of problems out there and it will continue to be felt through the year. We don't see any signs of stabilizing.''

Paulson, whose New York-based company manages about $33 billion, made bets that subprime-mortgage debt would fall after he noticed ``bubble like'' prices. His Paulson Partners fund rose 18 percent a year since it started in 1994, and his main fund focused on subprime debt rose 591 percent last year. Banks and securities firm worldwide posted more than $395 billion in losses and writedowns since the subprime crisis started last year.

The U.S. is heading into a recession as falling home prices weigh on consumer spending, Paulson said. The second half of this year will be worse than the first as the economic slowdown continues into 2009. Signs of stress are ``accelerating'' in the housing market, he said. Paulson said he's betting on falling securities prices.

``I don't consider myself a bull or a bear,'' he told the audience at Monaco's Grimaldi Forum. ``I'm a realist.''

A Royal Bank of Scotland Group Plc strategist agrees that stock and credit markets still face the worst in a slump that started almost eight months ago.

`Most Bearish Period'

``Mid-July through to October is likely to be the most bearish period we will experience in the bear market that began in the fourth quarter of last year,'' Bob Janjuah, a credit strategist at the bank in London, wrote in a report dated June 11. .....(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aXSOhMmQinBc&refer=home

[Mrs. Overall]

1. My knowledge of financial terms is limited--what exactly is a "writedown"?

[marmar]

2. From Yahoo! Answers:

Best Answer - Chosen by Asker

A writedown is a term for an item which is expensed to the income statement when it is determined that the value of an asset is less than it was previously valued at.

So in the recent case of Ebay they had to write down the purchase price of Skype i.e. they paid too much for the asset so at fair value it was determined it was worth significantly less. The sum of all cash future cashflows maybe dont equal the price paid so in all essence they over estimated Skypes revenue making possibilities.

This would in turn have an affect on the balance sheet meaning that some of the fixed assets would be reduced in value leading to a reduction in the value of equity

Other examples could be inventory where a company may have overpaid writing down the value of inventory from $1m to $800,000 would lead to an exceptional loss of $200,000 which would be charged against the companys income statement to account for the loss.

My is that serious writedowns are the result of poor planning and control policys within an organisation execs should realise the downsides as well as possible upsides and exercise prudence when deciding to invest in a project.

[Mrs. Overall]

4. Ah, thanks! I just read about RBS warning in Breaking News as well.

It seems like this story should be huge and cause for worry, but it isn't getting much attention.

[Dollface]

3. I wonder whose pocket that's going into.

[no_hypocrisy]

5. They can't "Enron" these numbers. The amounts are too huge.

You can try to hide losses up to a point, and then you run out of money . . .

[madrchsod]

6. you mean the banking industry is going to return

to reality? i`d say it`s about time


now we have to figure out how to stop the commodity speculation which is a far greater threat than the housing scam