More write offs to come?

According to Goldman Sachs’ analysts on June 17, 2008, US banks could need another US$ 65 billion of fresh capital injection as losses and write downs extend into the first quarter of 2009.

That could mean further losses and write offs of US$ 100 billion or more to come from US banks alone. Together with the recent accumulated US$ 400 billion plus global write offs reported by Bloomberg news, the expected losses to the first quarter of 2009 would increase the total to more than US$ 500 billion.

Since the estimated US$ 100 billion losses do not include any further substantial write offs by European and Asian banks or other financial institutions worldwide, which are probably still busy providing subprime loans related losses quarterly going forward, despite the confident sounding rhetoric of financiers, central bankers and politicians that the worst is over, many top US and global banks are possibly just treading water.

In fact, some are waiting for a further capital injection from sovereign wealth funds, their shareholders, or possibly a national bail out eventually.

There is nothing wrong with government officials ratcheting up confidence in the financial systems of a country and twitching statistics, if any; it is for the common good; no one of sound mind would prefer to see a bank run or a depreciation of the country’s currency which will bring on more pain to her people. But investors will soon tire of constant rhetoric that paints a rosy picture to camouflage the real gloom and doom in a country, or of a company/bank promising that the worst is over, when it is not quite over.

So far, the accounting profit and loss results say it all. And there will be more write downs to come. (Remember the worst case scenario losses of US$ 900 billion plus forecast provided by Allan last year, followed by the subsequent US$ 945 billion, and the US$ 1 trillion forecasts of the World Bank, and Goldman Sachs respectively?)

Unless investors have a rather huge appetite for high risks amidst plunging realty and stock market prices in the US and several other countries, the continual unfolding of huge quarterly losses of financial and highly geared corporations, a depreciating US dollar which helped raise commodities, food and oil prices pushing up inflation worldwide, instead of what the US authorities had desired, it could be better to stay on the sidelines or hold cash. But then how would I know?