Meltdown losses to hit $4 trillion

Worldwide losses from the credit crunch could reach $4 trillion by the end of 2010, the International Monetary Fund (IMF) has warned. The Global Financial Stability Report is the first by the IMF to include credit losses on debt originated in Japan and Europe. The IMF said in that US financial institutions are likely to lose $2.7 trillion, which is substantially more than the $2.2 trillion it forecast in January and the $1.4 trillion last October. The report said the banks might need $1.7 trillion in additional capital to be able to stabilize the financial system. The IMF also warned that even with fiscal stimulus and government action, the process of cleaning up the banking system would be 'slow and painful'. The IMF estimated that banks worldwide could suffer credit- related losses of approximately $2.8 trillion from 2007 through 2010, and that about $1 trillion of that amount has already been written down. The fund said US banks have written down about $510 billion in assets with further write-downs of $550 billion expected over the next two years. In the euro area, bank losses are forecast to reach $750 billion through 2010, from $154 billion at the end of 2008. Losses at European financial institutions are projected to reach $1.2 trillion. The IMF said banks in the US, euro area and Britain were expected to post losses between 2008 and 2010 before returning to modest levels of profitability.