There is still more fallout to come from the sub-prime mortgage crisis in the United States and the consequent credit crunch, according to private equity firm CHAMP.
CHAMP Private Equity managing director Joseph Skrzynski told an American Chamber of Commerce in Australia luncheon on Thursday that so far the US banking system had written off about $US300 billion as a result of the crisis.
"The new buzzword among US banking sector analysts is `confession time'," Mr Skrzynski said.
"And the greatest confessor so far has been UBS, one of the biggest banks in the world ... which has taken a $US38 billion ($A40.48 billion) hit to its balance sheet on shareholders' funds of $US56 billion ($A59.65 billion)."
Merrill Lynch had taken a $US25 billion ($A26.63 billion) hit on shareholders' funds of $US39 billion ($A41.54 billion).
"Neither of those organisations, and indeed many others, will in two years' time be anything like the way we've known them for the last two years," Mr Skrzynski said.
"But the scary thing is that we really haven't touched bottom yet.
"Other big banks, particularly in Europe, are yet to `fess up to their full exposures - exposures not just to sub-prime residential mortgages but also to the sub-prime corporate debt, consumer credit, and the big unknown: the credit derivatives instruments and the counter-party risks involved with those.
"The last is possibly the scariest."
Mr Skrzynski said some commentators said there may be at least another $US300 billion ($A319.56 billion) in write-offs to come.
Furthermore, the ripple effects of the credit contagion combined with economic slow-down would see rising defaults in automotive loans, credit cards and low-document loans and other areas.
It was calculated that non-bank losses would easily exceed the losses of the regulated banking sector, so the total losses incurred would rise above $US1.5 trillion ($A1.6 trillion).
Mr Skrzynski said the higher cost of securing funds now meant that private equity was unlikely to enter into as many "mega deals" of $20 billion to $30 billion.
"For the next couple of years, you won't see the big MBOs (management buy-outs) overseas or in Australia," he said.
Private equity was also unlikely to target well-run companies like airline Qantas because it could no longer afford to pay the large premiums that it could when securing funds was cheap.
"What will continue, I think, is where there's a troubled company where the investors have deserted it, its price is down because they just don't believe that management and the board of directors are going to turn it around ... that will continue to be a target for private equity in the future," Mr Skrzynski said.
(20min delay)