US subprime crisis costs global 7.7 trillion dollars: bank

Feb 14 03:20 PM US/Eastern

The meltdown in the US subprime real-estate market has led to a global loss of 7.7 trillion dollars in stock-market value since October, a report by Bank of America showed Thursday.
The crisis, which has spread beyond US shores to banks and other sectors worldwide, is "one of the most vicious in financial history," according to Bank of America chief market strategist Joseph Quinlan.

Quinlan said in the report that the losses are worse than any in the past few decades, including Wall Street's Black Monday of 1987, the 1999 Brazilian real currency crisis and the collapse of hedge fund Long Term Capital Management (LTCM) in 1998.

An analysis by the US bank showed that in the most recent episode linked to subprime, or high-risk, real estate loans to people with shaky credit, world market capitalization was down 14.7 percent three months after a peak in late October.

That compared with a similar loss three months later of 13.2 percent after the LTCM crisis, 9.8 percent for Black Monday and 6.1 percent for the Brazil crisis.

The losses were also greater than those suffered after the September 11, 2001, terro attacks, the Asian financial crisis starting in 1997, Argentina's default on its debt in 2001 and the 1994 Mexican peso crisis.

"It could take months or even years before Wall Street and others get a handle on the true cost of the US subprime meltdown and the attendant global credit crunch," Quinlan said.

"While subprime loans were once thought to be relatively small in scale and contained to just one segment of the US financial sector, the opposite has become painfully evident over the past few months."

A report last week by Standard & Poors ratings agency showed global stock markets were walloped with a collective loss of 5.2 trillion dollars in the month of January alone.

Quinlan said it is not clear that the massacre in equities is over yet.

"Against this backdrop, any investor that has been buying US equities on the dips over the past few months has, in general, dug himself a deeper hole," he said.

"In the end, the current financial crisis is one for the record books and one, more ominously, not over yet."

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