Jenny Anderson last week ran down the list of winners and losers in terms of subprime losses. Winners (or at least banks with relatively small losses): Goldman Sachs (NYSE:GS); Credit Suisse; Lehman Brothers (LEH); JP Morgan (NYSE:JPM). Losers: UBS (NYSE:UBS); Merrill Lynch (MER); Citigroup (NYSE:C). Anderson concludes:
Some of the Street’s safest institutions — or those that hoped to be perceived as safe — turned out not to be, while some perceived as risky are so far sailing through.
Anderson doesn't go into a lot of detail about why this should be the case, but for me it's quite intuitive. The reason is that most of the pain has been felt not by institutions taking on aggressive risk positions, but rather by institutions who have seen the value of AAA-rated securities fall out from underneath them. If an old-school banker has AAA-rated paper on his balance sheet at par (or the risk of being forced to buy such paper at par), he knows that it might fall in value to 99 or maybe even 97 cents on the dollar. It never even occurs to him that it could be worth only 50 cents or less. A bet on AAA-rated paper plunging in value and behaving more like equity than debt? That's the kind of bet engaged in only by houses with much more robust risk appetite.