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Subprime Debacle Bigger Than Expected

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Subprime Debacle Bigger Than Expected

Economy

Subprime Debacle Bigger Than Expected

Subprime Debacle Bigger Than Expected

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A report by Goldman Sachs says Wall Street's top-tier investment banks will report bigger-than-expected write-downs on their subprime mortgage investments. Three banks will account for losses totaling more than $33 billion. Citigroup alone will acknowledge nearly $19 billion.

STEVE INSKEEP, host:

Now, every time another Wall Street firm announces another multibillion dollar write down because of the credit crunch, you think, well, that might be the bottom; but if you think so, think again. One of the Street's top analysts says big firms like Citigroup and Merrill Lynch still have a long way to go.

NPR's Jim Zarroli has more.

JIM ZARROLI: The report by Goldman Sachs analyst William Tanona was downbeat enough that it sent shares of financial services companies falling across the board. Citigroup lost nearly three percent and so did JP Morgan.

Tanona predicted that Citigroup would have to write off almost $19 billion in bad debt for the year, not the $11 billion predicted earlier. And he said it was likely that the company would have to reduce the dividend it pays shareholders by 40 percent.

Merrill Lynch and JP Morgan would also have higher than expected losses. He said the write offs for the banks would total more than $33 billion. None of the three banks would comment on the report.

A lot of Wall Street firms have seen big losses in mortgage-backed securities this year because of the rising rate of foreclosures especially among subprime mortgages. Tanona said the banks had done well this year in investment banking and some kinds of trading, but the gains were offset by the mortgage losses.

Tanona pointed out that the year had started auspiciously for the big banks with some seeing record-breaking results and all-time highs. But as the extent of mortgage losses became clear, their position seemed to change overnight, and some, like Merrill Lynch, went on to record their first quarterly losses in years.

Jim Zarroli, NPR News, New York.

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