subprime toll tops 500bn

Wall Street banks, brokerages and hedge funds may report $US460 billion ($503 billion) in credit losses from the collapse of the subprime mortgage market, or almost four times the amount already disclosed, according to Goldman Sachs Group Inc.

Goldman said the credit losses it foresees may ''result in a substantial tightening in credit conditions as these institutions pull back on lending to preserve their reduced capital and to maintain statutory capital adequacy ratios.''

Profits will continue to wane, other analysts said.

''There is light at the end of the tunnel, but it is still rather dim,'' Goldman analysts including New York-based Andrew Tilton said in a note to investors Tuesday. They estimated that residential mortgage losses will account for half the total, and commercial mortgages as much as 20%.

Earnings and share prices at US financial institutions tumbled in the past year as fallout from the mortgage crisis spread to other markets. Demand for mortgage-backed securities evaporated, leading to the collapse of Bear Stearns, once that market's largest underwriter, and a Federal Reserve-led bailout by JPMorgan Chase earlier this month.

Goldman's own share-price estimate was cut 3.7% to $US210 at Fox-Pitt Kelton Cochran Caronia Waller. The research firm also reduced its profit estimates for the world's biggest securities firm for the rest of this year and all of 2009.

Merrill Lynch had its 2008 profit estimates cut by 45% at JPMorgan on concern the third-largest US securities firm by market value may disclose further writedowns on subprime mortgages. Merrill may report a total of $US5 billion in additional losses on collateralized debt obligations, so-called Alt-A mortgages and commercial mortgages, New York-based analyst Kenneth Worthington said.

Bank of America Corp., the second-biggest US bank by assets, was downgraded to ``sell'' from ``neutral'' at Merrill Lynch. The company, based in Charlotte, North Carolina, also had its earnings-per-share estimate lowered to $US3.30 from $US3.50 in 2008 and to $US4.00 from $US4.40 in 2009, analysts including New York-based Edward Najarian wrote in a note to clients today.

Lehman Brothers Holdings Inc., the fourth-largest US securities firm, had its share-price forecast cut 16% to $US70 at Fox-Pitt.

The brokerage's 2008 and 2009 profit estimates were also reduced.

Credit-card loans, auto loans, commercial and industrial lending and non-financial corporate bonds make up the rest of the $US460 billion in credit losses estimated by Goldman.

Goldman, which has lost 16% this year on the New York Stock Exchange, rose 75 cents to $US179.63 in composite trading at 4:07 p.m. Merrill fell 53 cents to $US47.85, Lehman declined $US1.43 to $US45.21 and Bank of America dropped $US1.48 to $US40.97.