Credit Crisis Causes $1.8 Trillion in Global Write-Downs

08 June 2010

NERA Economic Consulting Releases Update to Credit Crisis Insights Series

New York -- Total write-downs and losses stemming from the credit crisis reached $1.8 trillion worldwide as of May 2010, according to a white paper from NERA Economic Consulting, a leading global provider of economic advice and analysis in business, legal, and regulatory matters. These massive losses amount to approximately 12.5% of annual US GDP. The total number of credit crisis lawsuits has now surpassed 400.

The authors of NERA Insights -- Subprime Lending Series, Part VII note that the outlook for future credit crisis lawsuits remains mixed. Filings of credit crisis lawsuits have declined and almost half of the decisions to date have been dismissals. However, the types of allegations, products, and defendants continue to shift, and the cases against some defendants, most notably the rating agencies, have survived several motions to dismiss and will proceed.

"The lawsuits, just like the credit crisis, have evolved towards more complex financial products and the trends in allegations, defendants, and plaintiffs have shifted accordingly," said paper co-author and NERA Senior Vice President Dr. Faten Sabry. "Regulatory investigations, such as the recent SEC lawsuit against Goldman Sachs, add to the uncertainty surrounding the direction and focus of the litigation."

Additional NERA Insights Findings

  • The largest component of the write-downs and losses has been loan charge-offs and increased loss provisions, accounting for 36%, or $641.9 billion.
  • Lawsuits involving products such as asset-backed securities, CDOs, and CDS now make up the majority of the recent credit crisis lawsuits.
  • The percentage of credit crisis filings that name D&O defendants decreased to 52% in 2009, down from 70% in 2007 and 61% in 2008. Early filings in 2010, however, show an increased filing rate against D&O defendants, with 67% naming D&O.
  • Through April 2010, 60% of filings targeted securities issuers/underwriters, though this increase is partially due to the wave of litigation against Goldman Sachs and its involvement in synthetic CDOs.
  • Credit crisis settlements reached over $2.1 billion through 30 April 2010. Of the $2.1 billion, approximately $1.7 billion arose from class action settlements.

NERA Insights -- Subprime Lending Series, Part VII examines the current trends in filings, settlements, recent decisions, and the changing nature of allegations in credit crisis lawsuits. The paper is authored by Dr. Sabry, NERA Senior Analyst Anmol Sinha, Associate Analyst Jesse Mark, and Analyst Sungi Lee.

The Subprime Lending Series can be read on the NERA website: www.nera.com.

About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.
 

About NERA

NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.