BANKING SYSTEM NOT WELL PROTECTED

quote: "Success is a thought process"

UBS Balance Sheet (source: Google Finance)

Balance Sheet 2008 in millions CHF
Total Assets 2,231,019.00
Total Liabilities 2,214,633.00
Total Equity 16,386.00

If you want to know why is the situation so bad, you only need to look at the balance sheet.

2.234 Trillion CHF in Assets with 2.214 Trillion CHF in Liabilities with Total Equity amounting to paltry 16.386 Billion CHF. Depending on what kind of assets they hold, whether it's properties or CDOs or bonds or others.

An impairment of 5% on assets would cost 111.55 Billion CHF, wiping out the entire Equity base of 16.386Billion CHF. With the recent sale of CDOs from Merill Lynch of their CDOs for 22 cents for the dollar, a 5% impairment is simply theoretical and perhaps even optimistic.

Just say for theoretical sake, a 5% impairment would require fresh equity of >100billion CHF. Surely Sovereign wealth Funds will need to have deep pockets easily to the tune of 300 to 500billions CHF to mitigate the problem.

The entire financial system is over-leveraged. Sub-prime originally would not have been an issue, but it now is, because it causes the over-leveraged Financial system to break down.

How much more money do we need? UBS being one of them, who else needs funding?

Your thoughts?

SUB-PRIME FATIGUE

quote: "Success is a thought process"

I have a personal conjecture. Sub-prime losses total an estimated 350billion or about 50% of total US$700 billion estimated sub-prime borrowings. So far, about 250 billion of losses has been announced as attributed to Sub-Prime. So I estimate that there is about another 100 to 150 billion of losses still hiding in someone's closet. Assuming that Sub-prime contagion does NOT cross over and affect the PRIME borrowers (due to the impending slow down in the US economy), the losses will be well absorbed. Additional provisions that the losses are well spread out and the huge losses do not hit a single bank or financial institution. Also if derivatives, a market that is being viewed as dangerous and risky by some, do not explode and become a crisis, (i.e. the mark-to-model derivatives that banks hold are held to maturity and do not need to be liquidated), I suspect the market just gets on with it. The market has seen rallies and falls with each good and bad news, but increasingly, the market seems to be stabilizing. I can only conclude that sub-prime fatigue has set in.

We all know the global economy is slowing, it is not something new, we all know sub-prime is bad, but after almost US$250 billion of announced and declared losses, the financial meltdown did not happen. The key financial institutions are still standing.

We all know it's bad, it's very very bad. Many have perhaps factored in these bad news. But as long as it doesn't kill you, it cannot be that bad enough. The market is tired of Sub-prime, they want something new to talk about.