With the further write-downs of JP Morgan Chase, ("JPMorgan Loses $1.5 Billion Since July" by Reuters, 12 Aug 2008, New York Times) on its mortgage and credit loans, will there be further write downs? Have we reached the end?
JP Morgan Chase's write-downs were partially due to the sale of Merill Lynch's $30.6 billion in risky debt to Lone Star funds for just $6.7 billion. If JP Morgan Chase was pressured to further write-down their investments, other financial institutions would be also pressured, not only by Merill Lynch actions but by JP Morgan Chase's as well. There could be another major round of write-downs which may cause a never-ending cycle of write-downs to occur.
What the financial institutions could do at this point in time, is to take the most conservative valuation and write-down their mortgage investments once and for all. Clear up everything in the balance sheet, get the necessary cash and move on.
They should not write-down slowly which places their stock prices at risk. It only adds jitters to the market and creates lots of uncertainty whenever there is negative news about the mortgage sector.
Uncertainty is something that financial institutions cannot afford at this point in time.
Tuesday, August 12, 2008
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