New York – As Wall Street’s top brokerages scramble to reassure investors they have limited exposure to the growing subprime mortgage crisis, analysts warned Wednesday that the worst may be yet to come.
When Bear Stearns disclosed Tuesday that two of its flagship hedge funds that invested in the riskiest part of the home-loan sector were nearly worthless, red flags went up everywhere.
The move will almost certainly trigger a mass revaluation of portfolios with similar investments, causing big write-downs at the banks, said Richard Bove, analyst with Punk Ziegel & Co.
“The banks are overstating the quality of assets on their balance sheets,” he said. “When they go back and look at these securities, it could be up to a 15 to 20 percent devaluation.”
Investors, too, were concerned. Shares in the major firms – JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Merrill Lynch & Co. – all tumbled by more than 3 percent.
